Quickstep Holdings Limited
Annual Report 2023

Plain-text annual report

Despatch of 2023 Annual Report ASX Release: 20 October 2023 Quickstep Holdings Limited (ASX:QHL) (Company) attaches its 2023 Annual Report for despatch to its shareholders. Authorised for release by the Board of Directors. For further information please contact: Mark Burgess - Managing Director Quickstep Holdings Limited Telephone: +61 2 9774 0300 E: mburgess@quickstep.com.au Dexter Clarke - Chief Financial Officer Quickstep Holdings Limited Telephone: +61 2 9774 0300 E: dclarke@quickstep.com.au Important Information – Forward looking statements: This release contains forward-looking statements and information that are necessarily subject to risks, uncertainties and assumptions. Many factors could cause actual results, performance or achievements of the Company to be materially different from those expressed or implied in this release including, amongst others, changes in general economic and business conditions, regulatory environment, exchange rates, results of advertising and sales activities, competition, and the availability of resources. Should one or more of these risks or uncertainties materialise, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this release. Except as required by law, the Company assumes no obligation to update or correct the information in this release. To the maximum extent permitted by law, the Company and its subsidiaries and officers do not make any representation or warranty as to the likelihood of fulfilment of any forward-looking statements and disclaim responsibility and liability for any forward looking statements or other information in this release. Principal address: 361 Milperra Road Bankstown Airport NSW 2200Fax: (02) 9771 0256 www.quickstep.com.au Tel: (02) 9774 0300 ASX Code: QHL Email: info@quickstep.com.au GLOBAL GROWTH ANNUAL REPORT 2023 2023 HIGHLIGHTS GLOBAL GROWTH Operational recovery is well progressed, with strong H2 FY23 performance. G R O U P R E V E N U E I N F Y 2 3 $94.4m 9% FY22 $264m IN NEW ORDERS AND ORDER COMMITMENTS AUGUST 2023 ENGINEERING COLLABORATION with SoMAC CRC and Deakin University’s Institute for Intelligent Systems Research and Innovation (ISRII) to solve the high cost of production. QUICKSTEP USA INC signs exclusive manufacturing and engineering integration agreement with TB2 LLC, Colorado for the TB2 Pod Interface system. 2023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZEROQUICKSTEP ANNUAL REPORT 202301 01 02 04 06 08 10 12 14 21 29 76 78 MILESTONES AND ACHIEVEMENTS JETSTAR Restructured relationship with key customer Jetstar Airways. MOU WITH ALLIANCE AIRLINES To secure formal contracting arrangements in support of Alliance Airlines’ growing fleet of Embraer E190 aircraft. APPLIED COMPOSITES Booked extensive drone contracts from Australian and international customers and is emerging as a leading tier 1 supplier in the market. Carbonix, Swoop, Dronamics, Spright. US EXPANSION Quickstep announced the selection of Wichita, Kansas as the location for its first US engineering and manufacturing facility. CONTENTS 2023 HIGHLIGHTS CHAIR’S REPORT CEO & MANAGING DIRECTOR’S REPORT GLOBAL GROW TH TOWARD NE T ZERO STRONG LE ADERSHIP BOARD OF DIRECTORS DIRECTOR’S REPORT REMUNERATION REPORT FINANCIAL REPORT SHAREHOLDER INFORMATION CORPORATE DIRECTORY STRONG LEADERSHIPBOARD OF DIRECTORSREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONCORPORATE DIRECTORY02 CHAIR’S REPORT CHAIR’S REPORT The 2023 financial year was undoubtedly a year of challenges, resulting in a financial performance that was below our expectations and our potential. However, it was also a year of considerable progress as Quickstep (QHL) works to reinvent itself, laying the foundations for future growth with a stronger, diversified offering, better suited to our changing world. The future Quickstep will consist of three businesses, all leveraging composites technology (in which Quickstep is a local and global innovator) but addressing quite separate markets, each with substantial growth prospects. During the past year we have made progress in securing new customers and partners for both our Aftermarket and Applied Composites (drones) businesses. In this report, I will outline our strategy and the progress that we are making in delivering it which we expect will drive strong shareholder returns over the coming years. The CEO’s report will cover some of the detailed activities and outcomes achieved in FY2023. Firstly, I would like to acknowledge the ongoing strong safety performance of Quickstep. Safety is a major focus of any manufacturing business, and it is a credit to the whole Quickstep team that we have managed to continue to work safely, notwithstanding the considerable operational challenges experienced over the past year. The core and historical QHL business is the Aerostructures business which manufactures components for the F-35 and C-130 aircraft. This is a stable and profitable business, although, as with most other businesses, we had operational challenges in the first nine months of FY23 as a result of the pandemic (namely supply chain issues alongside staff absenteeism and talent shortages in a suddenly hyper-competitive market). We also had a significant failure of some machinery which took longer to repair than expected, again, influenced by reduced international labour movement stemming from challenges and restrictions brought about by COVID. The Aerostructures business has developed deep expertise in the composites field that is unique in Australia and globally competitive and this kept us in demand locally and internationally. Where our strategy has taken us into new territory and expansion is the deployment of our composites expertise in two new areas where we believe Quickstep has a distinct competitive advantage. These should deliver future growth in both revenue and, more importantly, profit. The first of these growth areas is the Australian Aftermarket business based in Tullamarine in Victoria. We acquired Boeing’s in-house aftermarket business in early 2021. This business provides a unique MRO (maintenance, repair and overhaul) capability in Australia. Much of the work that is and will be done in QHL’s Tullamarine facility, previously had to be completed internationally. The ability to do the work locally has a myriad of advantages for local airlines, not least of which is the substantial reduction in greenhouse gas emissions from not having to fly significant aircraft components around the globe, particularly as airlines begin to aggressively pursue near-term and 2050 carbon targets. While this business initially struggled to gain traction, the outcomes from the review conducted in the second half of FY23 have resulted in a substantial uplift in work performed by the aftermarket business. In addition, the strategic partnership announced in September with ST Engineering (a world leader in commercial aircraft MRO) is a significant development. We expect that the results for the Aftermarket business over the next couple of years will improve from the loss reported in FY23. The second growth business is the Applied Composites business which is firmly focused on becoming the world’s largest tier one provider of complex drone aircraft and components. While this aspiration might sound lofty, Quickstep has – over many years – developed and refined unique technology which produces aerospace composite products at a significantly reduced cost over traditional composite manufacturing techniques. In particular, the Qure and AeroQureTM proprietary processes and the Aeroline production system give Quickstep a substantial competitive advantage. Over the past year, Quickstep has made good progress winning new customers and partners for this business and the impact on profitability should be seen over the coming years. Given that the complex commercial drone market will be heavily skewed to the USA, it is imperative that Quickstep has an engineering and manufacturing facility in the USA to support customers and shorten supply chains. As previously announced, a site in Wichita Kansas has been selected and the business is now working on securing the funding to enable the development of this US site in the near term. 2023 HIGHLIGHTSCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZEROQUICKSTEP ANNUAL REPORT 2023$94.4m 9% FY22 On behalf of the Board, I would like to thank all employees of Quickstep, the management team and our CEO for maintaining their dedication and enthusiasm throughout a difficult year. I would also like to acknowledge the support of our shareholders over this period of transition. I believe Quickstep is at a pivotal moment in its development, as we manage the transition from the Aerostructures business being the only avenue for growth and profitability, to a much more robust company with three major businesses contributing to the success and profitability of Quickstep. Going through this transformation is challenging and some teething issues have resulted in a poor financial outcome for FY23, with a corresponding slump in our share price. It is our expectation that we are through the most painful part and that the benefits of Quickstep’s growth strategy will become increasingly visible to all stakeholders, not least our shareholders. PATRICK LARGIER Chair, Quickstep Group 03 “I believe Quickstep is at a pivotal moment in its development, as we manage the transition from the Aerostructures business being the only avenue for growth and profitability, to a much more robust company with three major businesses contributing to the success and profitability of Quickstep.” STRONG LEADERSHIPBOARD OF DIRECTORSREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONCORPORATE DIRECTORYGROUP REVENUE04 CEO & MD REPORT CEO & MD REPORT Quickstep further secured its base order book during the 2023 financial year with a record $260M in new contracts, contract renewals and order commitments across all business segments. Meanwhile, the pivot to increasingly commercial, scalable, ‘best athlete wins’ markets that has been underway over the last 18 months is gathering pace. In defence aerostructures not only have we achieved a record order book, we have also started to position ourselves effectively to win new business in the Guided Weapons and Explosive Ordnance (GWEO) enterprise. This legacy business has potential for growth, which will be further enhanced by establishing a presence on both sides of the Pacific, capitalising on the AUKUS alliance agreement. Quickstep is emerging as a successful tier one supplier in the commercial drones segment, leveraging both its deep engineering capability and proprietary process technology. This is then underpinned by equity stakes and manufacturing agreements in a number of promising start-ups in Australia and the US. The successful conclusion of the Aftermarket strategic review and major announcements with Alliance Airlines and ST Engineering have positioned that business for growth over the next 12-36 months. Strong customer demand for onshore capability with shorter supply chains represents a significant tailwind for this business. Quickstep enjoys great peer, customer, and broader industry recognition in Australia and the US for the positions we are building in high growth, higher margin segments. Deep engineering and technology capability is in our DNA, but we need to now venture beyond Australia to exploit this to its full potential. Put simply, we are outgrowing the Australian market. Building a full-spectrum, multi segment aerospace company from an Australian base takes significant time, effort and investment. We acknowledge that contrary to other investment environments, this is a bold investment thesis in the Australian listed investment space and the value created can take quite a while to be reflected in the company’s valuation and share price. Building strong businesses, which create value over the long-term, is key to success in our industry. We will be working hard to ensure that this proposition is recognised by investors in Quickstep and that it translates into the valuation of the company. The foundation of our growth plan is predicated on strong differentiation across our business including: — The establishment of a US footprint, as there are few, companies like us in the US – with broad and deep capability, yet agile and innovative across multiple segments. — Our strong technology foundations and a clear plan to leverage that technical capability into high growth, high margin markets, across different geographies. — Defence Aerostructures: the future shape of our defence business will be crafted in the US as well as Australia. We will be one of very few Australian companies, and probably the only independent aerospace one, that will offer deep engineering, manufacturing and sustainment capability on both sides of the Pacific. — Drones: we seek to grow this segment, becoming the world’s largest tier one provider of complex drone aircraft and components. Underpinned by deep engineering capability and a completely transformational production system, Aeroline, - a fully automated system offering very large reductions in labour content, and therefore cost versus traditional composite manufacturing techniques. This is advanced manufacturing befitting the third revolution in aerospace and has already been proven through the F-35 flare housing project and automation we have proven in current drone production. — Aftermarket: we expect to grow to capture a high market share of the regional MRO market in commercial and defence, driven by reduced costs, improved turn times and lower emissions. With a network of strong customer and partner relationships, in a market that wants the capability we offer onshore and where we have no direct domestic competitor of scale. These growth dynamics are larger and more profound than anything the business has experienced before. It requires different thinking, a different risk appetite, a drive into more dynamic markets overseas and investment in a more dynamic business to exploit those markets. 2023 HIGHLIGHTSCHAIR’S REPORTGLOBAL GROWTHTOWARD NET ZEROQUICKSTEP ANNUAL REPORT 2023$264m in new orders and order commitments The pivot we have been working on for 18 months represents just the beginning. We recognise that shareholders have been very patient and appreciate those that are with us on the journey. Rest assured, the future of this business is technology driven aiming for high growth with step change margin performance. MARK BURGESS CEO and Managing Director, Quickstep Group 05 “These growth dynamics are larger and more profound than anything the business has experienced before. It requires different thinking, a different risk appetite, a drive into more dynamic markets overseas and investment in a more dynamic business to exploit those markets. ” STRONG LEADERSHIPBOARD OF DIRECTORSREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONCORPORATE DIRECTORYIN FY2306 GLOBAL GROWTH GLOBAL GROWTH Quickstep’s business strategy is focused on global growth – growth derived from multiple segments in multiple geographies. Over the last decade, the company has consistently exported more than 90% of its revenue, making it a leading Australian aerospace exporter, driven largely by defence aerostructures contracts with major US prime contractors. The company has diversified its portfolio with expansion beyond its traditional aerostructures base. We now build complex aerostructures, design and build drones, and provide repair and overhaul capability to aircraft operators. This will be further augmented by expansion into guided weapons and clean technology applications. All leveraging our core competency in complex carbon fibre engineering and manufacturing. Hardware is hard and we have a globally recognised capability in this space. We are developing a more balanced portfolio with growth coming from multiple segments. More revenue is being generated in the domestic market from the Aftermarket business (driven by the trend toward onshore capability) and the drones business (driven by domestic demand from key customers). Both of which offer enhanced margin opportunity and diversification of revenue and customer mix. The announcement of our first US facility will allow the company to service the North American market from an onshore facility, taking Aussie ‘smarts’ to the US. This is of particular importance in the drones market, where the US represents the majority of global demand across both commercial and military applications. It will also position the company more effectively to pursue defence opportunities, where workload can be balanced between US and Australian facilities, offering our customers an attractive and flexible supply chain capability. DEFENCE The carbon fibre addressable market in the defence structures sector is projected to reach $3.6bn 1 MRO The Oceania component MRO market $244m2 SPACE The global Space structure market is expected to reach $1bn3 2023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTTOWARD NET ZEROQUICKSTEP ANNUAL REPORT 2023Source: 1. Quickstep Market Analysis, 2022; 2. Aviation Week 2023; 3. McKinsey 2023by 2025by 2030in 202307 CLEAN TECH The global CleanTech addressable market is expected to reach $15bn 1 by 2030 UAV The global commercial UAV market is expected to reach $15.5bn3 STRONG LEADERSHIPBOARD OF DIRECTORSREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONCORPORATE DIRECTORYby 203008 TOWARD NET ZERO TOWARD NET ZERO PROJECT H2-350 Collaborating with Swinburne University’s AIR Hub and NSW company Bralca 2.0, Quickstep has integrated an “off-the- shelf” hydrogen fuel system into a UAS platform. Following 6 months of addressing logistical, safety, and technical challenges, we’ve successfully incorporated the fuel cell powerplant and hydrogen storage onto the aircraft. Aerostructure design has been improved to accommodate these advanced powerplants. Ground testing is complete, and we’re set to begin flight testing later this year! INTELLIGENT HYDROGEN STORAGE SOLUTIONS In 2022, Quickstep received $800K in R&D funding from the NSW Government’s Clean Technology Innovation Program. We are excited to have solidified a partnership with the University of New South Wales to jointly create specialized Type V hydrogen storage tanks for Advanced Air Mobility Aerostructures. The project is underway and we hope will yield advanced hydrogen storage tanks within the next year. ELECTRIFICATION OF FLIGHT — BROLGA UAS Quickstep understands the rising demand for versatile Uncrewed Aircraft Systems (UAS) across diverse industries. Our survey of end users such as Border Force, Defence, Government, agriculture, and real estate revealed a common need for adaptable systems. To address this, we're developing a modular and reconfigurable UAS named Brolga. This platform aims to break free from specific application constraints, offering a customizable platform for enhanced efficiency and flexibility. With our expertise in aerospace composites, we aim to revolutionize UAS use across various sectors. Currently in early design stages, we're on an accelerated schedule to deliver an initial all-electric prototype, with a full variant planned for a hydrogen powerplant. These developments will feed into the wider electrification of flight strategy the company is developing. I N 2 0 2 2 $800K Received in R&D funding from the NSW Government’s Clean Technology Innovation Program 2023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHQUICKSTEP ANNUAL REPORT 202309 CORPORATE SUSTAINABILIT Y PROGRAM We are very proud to announce the initiation of our Corporate Sustainability Program as we strive to contribute to a more sustainable world and create long-term value for our shareholders. We are working to establish sustainability goals in collaboration with our employees, customers, and key stakeholders. Our Corporate Sustainability Program encompasses a comprehensive set of initiatives to minimise environmental footprint, promote social development, greatly improve efficiency, and cost outcomes, and embrace ethical practices throughout our value chain. By integrating sustainability into our corporate strategy, we position ourselves to differentiate our offering and thrive in an ever-evolving business landscape, one which increasingly values improved environmental and social outcomes. STRONG LEADERSHIPBOARD OF DIRECTORSREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONCORPORATE DIRECTORYCOMPOSITE BRAIDING TECHNOLOGY RMIT collaboration to utilise their state-of-the-art composite braiding infrastructure to manufacture commercial UAS aerostructure, aiming to investigate the potential, viability, and advantages of braiding infrastructure, with the prospect of integrating it into Quickstep’s Aeroline.HYDROGEN POWERPLANT with Deakin University, to utilise their Hycel Technology Hub (one of Australia’s first facilities for safely testing, manufacturing, optimising and training in new hydrogen technologies), to develop and test Hydrogen Fuel Cell and Storage Systems.10 STRONG LEADERSHIP The leadership team at Quickstep know that the best way to grow as an organisation is to invest in their number one asset, their people. DEMI STEFANOVA Chief Operating Officer DEXTER CLARKE Chief Financial Officer JOSH SCANLON EGM Aerostructures Quickstep has undergone a significant transformation over the past year, improving operational capabilities and driving efficiencies across our business. We have created dedicated programs focused on enhancing processes, reducing costs, and eliminating failures. Our Operational Excellence Transformation Program (OPxP) fostered collaboration and effective execution of programs to enhance equipment reliability, processed and reduce cost. Looking ahead, we will continue to invest in our teams, provide resources and support, and pursue growth and innovation. Joining the Quickstep team at a challenging time for the business also showed what the business is capable of under difficult circumstances. Like all businesses, we need to get the basics right and I am spending much of my time with the whole team testing our thinking and looking at new ways to improve productivity and profitability. By getting the basics right, we earn the right to focus on our aspirational objectives and can then provide greater value to our shareholders, customers, and all stakeholders. Quickstep is recognised as a highly capable manufacturer here in Australia and around the world which is a testament to highly committed team which I am privileged to now be part of. The sky really is the limit for Quickstep. Our position as a well- respected part of the global supply chain in defence and commercial markets provides the opportunity to expand our focus, to utilise the wealth of experience and knowledge in our team and to apply this focus to modern challenges. Over the last 12 months the Aerostructures business has continued to show tremendous resilience in the face of difficult operating environments pertaining to the global supply chain challenges and Australia’s recovery from Covid. Our performance is underlined by our core strength, our people. Highly skilled, focused and committed, their capability serves us well today and they will form the cornerstone of an exciting future for the business. LUKE PRESTON Head of Technology & Partnerships I look forward to applying my background in design and manufacturing complex automotive products, honed from Ford and Tesla to create new Advanced Air Mobility solutions, designing and manufacturing through automation new air vehicles that will need to be produced at scale. Quickstep’s ability to manufacture aerospace components at scale and the ability to solve complex manufacturing challenges through its advanced manufacturing engineering talent will see us design our own products; they will be easy to manufacture, elegant and low cost. 2023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZEROQUICKSTEP ANNUAL REPORT 2023STRONG LEADERSHIP 11 SARAH HART Head of People & Culture STEVE OSBORNE VP Quickstep USA, Inc. Looking forward, People & Culture’s focus remains on nurturing a workplace where our diverse and talented employees can thrive. We are excited about the year ahead and the upcoming goals we have set, including launch of Diversity Equity and Inclusion program, payroll transformation program, building a robust talent pipeline, continuous improvement of Employee Engagement and creation of a learning culture. All of which align with our commitment to innovation and inclusivity, underpinned by technology and innovation in all that we do. The AAM sector provides us an opportunity to show what Quickstep is about; leading the way in the design and development of high-rate manufacturing systems to meet these new demands of thousands of aircraft per year. It supports all of our lines of business from aerostructures manufacturing to MRO and supports our international market expansion. This is something that all our employees and shareholders should be genuinely excited about. I’m very much looking forward to it! TIM GENT Head of Strategy & Business Development, Aftermarket I believe that Quickstep will continue to excel in the MRO sector. Aftermarket will focus on expanding our customer base and strengthening relationships with existing clients. Quickstep’s expertise in composite repairs and proprietary repair technologies make us unique. Strong partnerships with OEMs and airlines give us access to valuable insights and enable us to provide comprehensive MRO solutions. BOARD OF DIRECTORSREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONCORPORATE DIRECTORY12 BOARD OF DIRECTORS PATRICK LARGIER Chair LEANNE HEYWOOD Chair ARC, Non-Executive Director When I was approached to join the Quickstep board in late 2019, I was attracted by the growth prospects for the company. While the business has been knocked about by the COVID pandemic, I am still of this opinion. I believe that over the past 18 months we have put in place many of the building blocks for this growth in both revenue and profitability over the coming years. As testament to this belief, over the past few years my family has consistently acquired QHL shares with direct and indirect holdings placing us as a Top 20 shareholder. I joined the Quickstep board in February 2019 when the company was forecasting a significant turnaround in net profit. That turnaround was delivered, and despite the challenges associated with COVID, the company continues to grow and diversify. As Chair of Audit and Risk, I enjoy overseeing Quickstep’s Audit and Risk efforts, led by a capable executive team who can effectively manage the delicate balance between innovation and growth while safeguarding the company’s assets, reputation, and long-term sustainability in a dynamic and challenging industry. 2023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZEROQUICKSTEP ANNUAL REPORT 2023BOARD OF DIRECTORS 13 LIS MANNES Chair RND, Non-Executive Director AVM KYM OSLEY (RETIRED) Non-Executive Director The leadership team at Quickstep know that the best way to grow as an organisation is to invest in their number one asset, their people. I have been impressed by their focus on the development and promotion of talented people, irrespective of their gender or background. ‘Agile’ is becoming a way of thinking not just a way of working, and ‘Smarter Solutions’ are creating more sustainable solutions. An organisational culture built on commitment, coordination and cadence is enabling great things to be achieved in Aerospace. I have been in and around the aerospace sector for many decades and have seen Quickstep grow in just over 10 years from a small startup to being a mature and highly respected player in the Defence and aerospace sectors. I think Quickstep is emerging from the pandemic well positioned for growth into an expanding Defence and aerospace market. STRONG LEADERSHIPREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONCORPORATE DIRECTORY14 Directors’ Report The Directors present their report on the consolidated entity consisting of Quickstep Holdings Limited and the entities it controlled at the end of, or during, the year ended 30 June 2023. Throughout the report, the consolidated entity is referred to as the “Group” or “Quickstep”. Directors The following persons were Directors of Quickstep Holdings Limited during the whole of the financial year and up to the date of this report: Mr. P Largier Mr. M H Burgess Mrs. L Heywood Mrs. E Mannes Air Vice Marshal K Osley (Ret’d) Mr. P Largier was appointed Chairman on 31 August 2020 and continues in office at the date of this report. Principal Activities During the year the continuing principal activities of the Group consisted of: production of parts for Northrop Grumman for the Joint Strike Fighter Project production of C-130J wing flaps for Lockheed Martin production of parts for the Joint Strike Fighter vertical tails for BAE Systems and Marand Precision Engineering • • • • manufacturing and development of parts using Qure Technology • maintenance, repair and overhaul of aircraft • continued development of technologies for scaled volume production. Review of Operations Total Revenue for the year ended 30 June 2023 was $94.4 million (FY22: $86.7 million) representing an 8.9% increase on the prior year. The revenue increase is attributable to strong H2 FY23 production volume in the Aerostructures line-of-business along with modest year on year absolute growth in the Aftermarket and Applied Composites line-of- businesses. The full year Group performance was impacted by the continuation of operational challenges which began in the second half of FY22, in particular, industry wide supply chain disruption and skilled labour shortages in the wake of the pandemic, specific key equipment reliability issues (Aerostructures impact), abnormal employee restructuring costs and Aftermarket goodwill impairment. In H2 FY23 operating conditions stabilised and the Group delivered revenue of $49 million and a return to profitability in Q4 FY23. The FY23 $9.7 million Gross Profit (FY22: $13.3 million) represents a $3.6 million or 27.2% decrease. The fall in gross profit is largely attributable to inconsistent production volumes throughout the year for the reasons identified above which leads to inefficiencies in labour and equipment utilisation. The FY23 ($5.7) million Profit/(Loss) After Tax includes the unfavourable impact of $2.3 million for the goodwill impairment related to the Aftermarket line-of-business, $0.5 million unfavourable impact of employee restructuring costs and the favourable impact of a $0.4 million foreign controlled entity legal accrual writeback. Total bank debt as at 30 June 2023 was $13.3 million (FY22: $9.8 million) representing an increase of $3.5 million. The bank debt increase is attributable to working capital levels related to the operational challenges noted above. Cash from operating activities of $1.9 million for FY23 was achieved through strong customer receipts and ongoing cost and cashflow initiatives. Quickstep Holdings Limited 2 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT 15 Directors’ Report Material Risks The material business risks faced by the Group that are likely to have an effect on the financial prospects of the Group and how the Group manages these risks include: - - - - - Foreign exchange – the reliance on sales from key customers which are billed in US dollars and sourcing of raw material product in US dollars, directly impacts both sales and operating profit. The Group has adopted a Foreign Exchange Hedging Policy which is considered to be suitable to the business. The risk associated with exchange rate fluctuation is expected to continue. Supply chain – the absence of alternate suppliers in some cases and the ongoing disruption of some supply chains impacted by the COVID-19 pandemic has the potential to disrupt production. Tight management of the supply chain has largely mitigated disruptions to date however the risk remains high until global supply chains normalise. Equipment failure – an extended failure of critical equipment has the potential to disrupt production. Preventative maintenance programmes, monitoring tools, critical spares stock and equipment supplier support arrangements are in place to mitigate this risk. Flooding – the area of Bankstown, where the Group’s Aerostructures line-of-business manufacturing site is located, is susceptible to localised flooding from nearby tributaries. Whilst historical water egress on the site itself has been minimal, employee access to site has been impacted for periods of time which has the potential to disrupt production. Revenue growth – the Group’s Aftermarket and Applied Composite lines-of-business are expected to be key drivers of revenue and profit growth in future years. The likelihood of this growth materialising particularly for the Aftermarket line-of-business depends on the volume of, and ongoing recovery in, commercial airline traffic. Dividends No dividends have been paid during the financial year. The Directors do not recommend that a dividend be paid in respect of the financial year (2022: $ Nil). Significant Changes in the State of Affairs There were no significant changes in the state of affairs of the Group during the financial year. Events Since the end of the Financial Year No matter or circumstance has arisen since 30 June 2023 that has significantly affected the Group’s operations, results or state of affairs, or may do so in future years. Shares under Options There are Nil (2002 Nil) unissued ordinary shares of Quickstep Holdings Limited under option at the date of this report. No options were granted during the year and since the end of the financial year. Quickstep Holdings Limited 3 STRONG LEADERSHIPBOARD OF DIRECTORSREMUNERATION REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 16 Directors’ Report Information on Directors The following information is current as at the date of this report Mr. Patrick Largier Independent Non-Executive Director - appointed 19 December 2019 Mr Largier is an experienced non-executive director and has over 30 years’ executive experience in the oil, chemicals and industrial sectors in Australia, the UK and South Africa. Prior to taking up non-executive director roles, he was Managing Director of Ludowici, an ASX-listed global specialist mining services company with operations across five continents. Over five years he led the company through a turnaround, followed by rapid international growth and the ultimate sale of the company to the Danish group FLSmidth in 2012. He then became Managing Director of FLSmidth Pty Limited for two years. Before this, Patrick spent 15 years in numerous business general manager roles at ICI and Orica's Plastics and Chemicals Groups. His final role in the company was on Orica's Group Executive team as General Manager - Strategy & Acquisitions. Before emigrating to Australia in 1992, Patrick spent ten years with Shell in Cape Town and Shell International in London. Since 2014 he has focussed his energies on non-executive director roles. He is currently a non-executive director and chairman of several private and private equity companies across a range of industries. Patrick has a Chemical Engineering degree (with honours) from the University of Cape Town and completed the Advanced Management Program (AMP) at Harvard in 2004. He is also a Graduate of the AICD. Chair of the Board from 31 August 2020 NIL Ordinary shares in Quickstep Holdings Limited 573,000 Mr. Mark H Burgess CEO and Managing Director - appointed 18 May 2017 Mr. Burgess joined Quickstep in May 2017 bringing with him over 20 years’ experience in the global aerospace and defence industry, where his successful delivery of profitable growth and complex projects in advanced technology businesses has led to significant employer, customer and industry recognition. Mr Burgess has held leadership roles of increasing responsibility across Europe, USA, the Middle East and Asia Pacific. After a long career with BAE Systems covering sales, contracts, project and general management he joined Honeywell in 2013 as Vice President Honeywell Aerospace, Asia Pacific. During his four years at Honeywell, he was responsible for driving sustained profitable growth across a defence, space and commercial helicopter portfolio. Mr. Burgess has extensive experience of governance and stakeholder management, working with public, private and not-for-profit sectors. He has managed several successful acquisition and post acquisition projects and has held numerous board positions on subsidiaries, private companies and international joint ventures. Mark holds a degree in Politics and Economics from the University of Hull and has completed several post graduate studies in business and operations management. Chief Executive Officer Non-Executive Director Carbonic Boats Pty Ltd (trading as Carbonix) Ordinary shares in Quickstep Holdings Limited 480,972 Experience and expertise Qualifications Special responsibilities Other current Directorships Interests in shares and options Experience and expertise Qualifications Special responsibilities Other current Directorships Interests in shares and options Quickstep Holdings Limited 4 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT 17 Directors’ Report Information on Directors Mrs. Leanne Heywood Independent Non-Executive Director - appointed 21 February 2019 Mrs Heywood joined the Quickstep board in February 2019 and brings experience as an ASX listed non- executive director, Audit and Risk committee and Nominations and Remuneration committee chair along with broad general management experience gained through an international career in the sales and distribution, mining, rural, government and not-for-profit sectors. Leanne has extensive international and domestic marketing experience and brings international customer relationship management, stakeholder management (including governments and investment partners) and team leadership experience in China, Japan, Mongolia, Singapore, South America, Europe and India. Leanne is an experienced leader of transformational change having led organisational restructuring, disposals and acquisitions, including integration. She has strong skills across Marketing, Business Analysis, Contracts, Procurement, Logistics, Accounting and Business Improvement along with an advanced ability to facilitate complex negotiations. Leanne holds an executive MBA from Melbourne Business School and a Bachelor of Business (majoring in Accounting) from Charles Sturt University. She is a graduate of the AICD International Company Directors Course and a Fellow of CPA Australia. Chair of the Audit, Risk and Compliance Committee and member of the Remuneration, Nomination and Diversity Committee. Allkem Limited; Symbio Limited and Midway Limited Ordinary shares in Quickstep Holdings Limited 19,523 Mrs. Elisabeth Mannes Independent Non-Executive Director - appointed 22 August 2019 Mrs Mannes joined the Quickstep board in July 2019, she is a highly experienced C-Suite executive with a 40-year career that has spanned both the fast-moving consumer and industrial goods industries. She has international and domestic general and operations management experience and was most recently Executive General Manager of CHEP Australia Limited, a wholly owned subsidiary of Brambles Limited (ASX: BXB), retiring in January 2023. Lis brings global leadership skills and has a proven track record of driving value by leading complex businesses through strategic, operational, and cultural challenges within competitive commercial environments. She has led business growth, organisational restructuring, disposals & acquisitions, and business integrations. Prior to joining CHEP she was Executive General Manger of the Consumer and Industrial division of Pact Group Holdings (ASX: PGH), and before this she was Operations and Business Development Director of Tip Top, a division of George Weston Foods (GWF) - a wholly owned subsidiary of Associated British Foods (LSE: ABF). Her skill set includes Business Strategy; Financial Management; Supply Chain Optimisation; People & Culture; Customer & Operational Excellence; Risk Management; ESG/Sustainability. She was a founder board member of the National Association of Women in Operations (NAWO). Lis is a Chartered Engineer (CEng) and a Fellow of the UK Institution of Mechanical Engineers (FIMechE). She holds an MBA, completed the AMP at INSEAD and is a Graduate of the AICD. Chair of the Remuneration, Nomination and Diversity Committee and member of the Audit, Risk and Compliance Committee. NIL Ordinary shares in Quickstep Holdings Limited – (held in spouse’s name) 42,176 Experience and expertise Qualifications Special responsibilities Other current Directorships Interests in shares and options Experience and expertise Qualifications Special responsibilities Other current Directorships Interests in shares and options Quickstep Holdings Limited 5 STRONG LEADERSHIPBOARD OF DIRECTORSREMUNERATION REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 18 Directors’ Report Information on Directors Air Vice Marshal Kym Osley (Ret’d) Independent Non-Executive Director - appointed 11 June 2020 Air Vice-Marshal Osley joined the Quickstep board in June 2020 and has over 46 years of Defence and aerospace experience including prior experience as the Program Manager of the Australian F-35 Joint Strike Fighter Program. Kym retired in 2021 from his full-time position as a Managing Director in an international consulting firm, working with Government and Defence clients to take up Board positions and private consulting work. Kym continues to support Defence in his active Reserve role as an Air Vice- Marshal. Kym has extensive international experience with Defence and aerospace industry gained through various Defence-related appointments in the UK and the US, and through his previous work as a Reservist officer promoting exports as a military specialist and leader in Team Defence Australia. He was awarded a Defence Industry Service Commendation by the Minister for Defence in 2019 for leading teams that have been supporting future Defence capability planning since 2016. Earlier in his military career, Kym was an aviator who flew in F-111, Phantom and F-18 aircraft with the RAAF and USAF. He was awarded a Conspicuous Service Cross in 1997 and made a Member of the Order of Australia in 2008 for services to Defence. Kym is currently the Chair of the Australian Air Force Cadet Foundation, a NED with PWR Holdings, a NED with Elbit Systems Australia and on the Strategic Advisory Board of a space-related company. Kym is a graduate of the Harvard Business School (Advanced Management Program) and is a Fellow of the Centre for Defence and Strategic Studies. He has a Master of Arts (International Relations), Master of Defence Studies, a BSc (Physics) and a Graduate Diploma of Management Studies and is a Graduate of the AICD. Member of the Audit, Risk and Compliance Committee. PWR Holdings Limited Ordinary shares in Quickstep Holdings Limited 76,739 Ms. Jillian McGregor Company Secretary - appointed 31 July 2020 – finished 7 September 2022 Ms. McGregor has approximately 20 years’ experience as a corporate lawyer and 9 years’ experience as a company secretary of ASX listed companies. She has regularly advised companies and directors on compliance with the Corporations Act 2001 (Cth), ASX listing rules and other corporate legal matters. Ms. McGregor holds a Bachelor of Laws and Bachelor of Commerce (Merit) from the University of NSW and holds a Graduate Diploma of Applied Corporate Governance from the Governance Institute of Australia She is currently the Company Secretary of ASX listed and unlisted companies. Ordinary shares in Quickstep Holdings Limited Mr. Craig Roelofsz Company Secretary - appointed 9 September 2022 Mr Roelofsz has approximately 22 years’ experience as a corporate and commercial lawyer. He has worked closely with ASX listed companies in providing advice on compliance with the Corporations Act 2001 (Cth), ASX listing rules and other corporate legal matters. Mr Roelofsz holds the degrees of Batchelor of Arts, Batchelor of Laws and Master of Laws and is admitted to practice as a legal practitioner in both South Africa and Australia. Mr Roelofsz is currently the director of his own corporate and commercial law firm with offices in Brisbane, Sydney and Melbourne. Ordinary shares in Quickstep Holdings Limited - Experience and expertise Qualifications Special responsibilities Other current Directorships Interests in shares and options Experience and expertise Qualifications Other current roles Interests in shares and options Experience and expertise Qualifications Other current roles Interests in shares and options Quickstep Holdings Limited 6 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT 19 Directors’ Report Board Structure & Director Independence The Company continually monitors the structure and performance of the Board to ensure it is of an appropriate size, composition and skill to lead the Company and meet its current governance and strategic needs. The Chair manages the Board to achieve responsive and effective business outcomes with highly committed Directors. Quickstep has a Remuneration, Nomination and Diversity Committee (RN&D Committee), whose responsibilities include the development and on-going review of Board competencies, structure, performance and renewal. Both the RN&D Committee Charter and “Policy and Procedure for Selection and Appointment of Directors” are accessible from the Company’s website as follows: www.quickstep.com.au The Policy and Procedure for Selection and Appointment of Directors includes a matrix of skills that are considered necessary within the non-executive Director group to facilitate an effective and efficient Board. The RN&D Committee periodically reviews both this matrix and the Directors’ actual skills mix to ensure they satisfy the current and immediately foreseeable needs of the Company. The Board aims to maintain a varied level of tenure amongst its Directors, which is seen as essential for its effective functioning given the significant growth and change experienced by Quickstep in recent years. This has resulted in both an influx of fresh ideas and the retention of sufficient Quickstep specific understanding to optimise strategic and operational changes. As the business evolves this is continually reviewed. The Board is committed to a majority of its Directors being independent to ensure the Board acts in the best interests of the entity itself, its security holders and stakeholders generally. Director independence is assessed on a regular basis, and all Directors are required to advise the Board of any actual or potential conflicts of interest as they arise, with any such conflicts tabled at Board meetings. In assessing independence, the Board considers a number of factors which include, but are not limited to, the “Factors relevant to assessing the independence of a Director” listed in Recommendation 2.3 of the Corporate Governance Principles and Recommendations 3rd Edition established by the ASX Corporate Governance Council (‘the ASX Principles and Recommendations”). Directors’ Meetings The numbers of meetings of the Company's board of Directors and of each board committee held during the financial year ended 30 June 2023, and the numbers of meetings attended by each Director were: Director Board Meetings Audit, Risk and Compliance Committee Meetings Remuneration, Nomination and Diversity Committee Meetings HHeelldd AAtttteennddeedd HHeelldd AAtttteennddeedd HHeelldd AAtttteennddeedd Mr. P Largier Mr. M H Burgess Mrs. L Heywood Mrs. E Mannes AVM K Osley (Ret’d) 18 18 18 18 18 18 18 18 18 18 - - 7 7 7 3 5 7 7 7 - - 4 4 - - 4 4 4 - Insurance of Officers and Indemnities Except as indicated below, the Group has not otherwise, during or since the end of the financial year, indemnified or agreed to indemnify an officer of the Group or of any related body corporate against a liability incurred as an officer. Insurance During the financial year, Quickstep Holdings Limited paid a premium in respect of a Directors’ and Officers’ liability insurance policy, insuring the Directors of the Company, the Company Secretary and all executive officers of the Quickstep Holdings Limited 7 STRONG LEADERSHIPBOARD OF DIRECTORSREMUNERATION REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 20 Directors’ Report Company and Group against a liability incurred as a Director, Secretary or executive officer to the extent permitted by the Corporations Act 2001. The Directors have not included details of the nature of the liabilities covered or the premium paid in respect of the Directors’ and Officers’ liability and legal expenses’ insurance contracts, as such disclosure is prohibited under the terms of the contract. Indemnities The Group has indemnified the Directors (as named in this report) and all executive officers of the Group and of any related body corporate against any liability incurred as a Director, Secretary or executive officer to the maximum extent permitted by the Corporations Act 2001. Auditor’s Independence Declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 69. Rounding of Amounts The Company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the “rounding off” of amounts in the Directors’ report and financial statements. Amounts in the Directors’ report and financial statements have been the nearest dollar. rounded off thousand dollars, or the nearest certain cases, to to in Corporate Governance Statement Quickstep’s Corporate Governance Statement can be found on the Company’s website. This report is made in accordance with a resolution of Directors on 25 August 2023. M H Burgess Director Sydney, New South Wales Quickstep Holdings Limited 8 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT REMUNERATION REPORT 21 Remuneration Report – Audited The Directors present the Quickstep Holdings Limited 2023 remuneration report, outlining key aspects of the Group’s remuneration policy and framework, and remuneration awarded this year. The report is structured as follows: 1. 2. 3. 4. Principles of Compensation Details of Remuneration Share Based Compensation Analysis of Bonuses included in Remuneration 1. Principles of Compensation Key Management Personnel (KMP) comprise the Directors of the company and the senior leadership team. KMP have authority and responsibility for planning, directing and controlling the activities of the Group. The report includes details relating to: Executive Director Mr. M H Burgess Non-Executive Directors Mr. P Largier Mrs. L Heywood Mrs. E Mannes AVM K Osley (Ret’d) Chief Executive Officer and Managing Director Chair of Board Chair of Audit, Risk and Compliance Committee and Member of Remuneration, Nomination and Diversity Committee Chair of Remuneration, Nomination and Diversity Committee and Member of Audit, Risk and Compliance Committee Member of Audit, Risk and Compliance Committee Other Key Management Personnel Mr. S J Gaffney Mr. D Clarke Mrs. D Stefanova Chief Financial Officer to 31 March 2023 Chief Financial Officer from 15 May 2023 Chief Operating Officer from 15 August 2022 The Board has established a Remuneration, Nomination and Diversity (RN&D) Committee which assists the Board in formulating policies on and in determining: • The remuneration packages of executive directors, non-executive directors and other key management personnel, and Cash bonuses and equity-based incentive plans, including appropriate performance hurdles, total payments proposed and plan eligibility criteria. • If necessary, the RN&D Committee obtains independent advice on the appropriateness of remuneration packages given trends in comparable companies and in accordance with the objectives of the Group. Further information on the role of the committee is contained in the charter available on the Company’s website. Quickstep has an Executive Remuneration Policy and a Non Executive Director’s Remuneration Policy. These are available on the Company’s website. Compensation levels for KMP of the Group are competitively set to attract and retain appropriately qualified and experienced directors and executives. The remuneration structures are designed to reward the achievement of strategic objectives and achieve the broader outcome of value creation for shareholders. Compensation packages include a mix of fixed compensation, short-term cash incentives and equity-based incentives. Shares, options or rights may only be issued to Directors subject to approval by shareholders in a general meeting. Quickstep Holdings Limited 9 STRONG LEADERSHIPBOARD OF DIRECTORSFINANCIAL REPORTSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 22 Remuneration Report – Audited 1. Principles of Compensation The Group does not have any scheme relating to retirement benefits for its KMP other than superannuation contributions defined under its statutory obligations. The Company’s policy is to provide executives with a competitive fixed compensation comparable to the median paid by like sized companies undertaking similar work and offers additional short and long term incentives to allow the executive to achieve top quartile compensation, if all performance hurdles are met. All incentives are capped. The Company’s policy is to provide non-executive Directors with a fixed fee comparable to the median of that paid by similar sized ASX listed companies operating in similar fields. Non-executive Directors are not eligible for participation in any of the Company’s incentive schemes. Fixed compensation Fixed compensation consists of base compensation, as well as statutory employer contributions to superannuation. Compensation levels are reviewed annually through a process that considers current labour market rates, the individual's contribution and overall performance of the Group. Compensation is also reviewed in the event of promotion or significant change in responsibilities. Performance linked compensation Performance linked compensation includes both short and long term incentives and is designed to reward key management personnel, excluding non-executive Directors, for meeting or exceeding the Company's business and their personal objectives. Each individual’s performance linked compensation is capped as a percentage uplift of fixed compensation. Other than as disclosed in this report, there have been no performance-linked payments made by the Group to key management personnel. Short Term Incentive KMP receive short-term incentives (STI) in cash on achievement of key performance indicators (KPI). Each year, the RN&D Committee considers the appropriate KPIs and associated targets to align individual rewards to the Group’s performance. These targets include measures related to the annual performance of the Group and specific measures related to the activities of individual KMPs. In FY23, a suite of Corporate KPIs were used, including two financial KPIs (weighting 40%), a KPI relating to safety (weighting 15%) and two growth focused KPIs (weighting 45%). The weighting of corporate KPIs used in the determination of an executive’s STI is 70% for KMP excluding the Chief Executive Officer and 100% for the Chief Executive Officer. The remaining 30% of KMP STI is determined by performance against personal KPIs which are aligned to the delivery of Quickstep’s strategic plan. The RN&D Committee is responsible for assessing whether the Corporate KPIs have been achieved and meet the criteria set out at the beginning of the year. Each year threshold metrics are determined, with no STI payable to any executive if these are not achieved. In FY23 each KPI had its own threshold/hurdle, target and stretch KPI. Actual performance is then assessed against the threshold outcome, the target outcome and the stretch outcome. Where performance falls below the threshold outcome, no payment is generally made against that KPI and where performance exceeds the stretch outcome the maximum stretch is payable. Where performance falls between threshold and target or target and stretch outcomes, an appropriate proportion of the KPI is payable. When the threshold target is achieved, 33% of the weighting for the KPI is payable; when target is met, 66% of the weighting for the KPI is payable. When threshold, target and stretch outcomes are achieved 100% of the weighting for the KPI is payable. In FY23, Quickstep achieved an overall result of 10% out of a potential of 100%, against the corporate KPIs. The threshold outcome was not reached for the two financial KPI’s and the two growth KPIs (with no STI payable). The target outcome was achieved for the Safety KPI. After reviewing the overall achievement of KPIs based on the above process, and with further consideration given to overall financial performance, the RN&D Committee has recommended that no STI is payable to KMP for FY23. Quickstep Holdings Limited 10 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO REMUNERATION REPORT 23 Remuneration Report – Audited 1. Principles of Compensation Long Term Incentive - Quickstep Incentive Rights Plan (IRP) In November 2013 the Company established the Quickstep Incentive Rights Plan (IRP). The IRP was designed to facilitate the Company moving towards best practice remuneration structures for executives and offers under the IRP have been made to a number of executives since its introduction. The terms of the FY23 IRP for CEO and Managing Director were approved by shareholders at the 2022 AGM on 16 November 2022 and the IRP terms for the management were approved on 19 December 2022. The IRP authorises the granting of Rights to executives of the Company, in the form of Performance Rights (PRs) and/ or Deferred Rights (DRs) and/or Restricted Rights - (RRs) (together, Rights). These Rights represent an entitlement on vesting to fully paid ordinary shares in the issued capital of the Company (Shares) with the total value of Shares being equal to the value of vested Rights (number of vested Rights x market value of a Share). The value of the vested Rights may be settled in cash, Shares or a combination of cash and shares as determined the Board. PRs may vest if Performance Conditions are satisfied. DRs may vest if service conditions are satisfied. There were no RRs or DRs granted in FY23. The Board has the discretion to set the terms and conditions on which it will offer PRs under the IRP, including the performance conditions and modification of the terms and conditions as appropriate to ensuring the IRP operates as intended. All PRs offered will be subject to performance conditions which are intended to be challenging. The PRs awarded during FY23 are subject to a performance condition based on achieving a relative Total Shareholder Return (TSR) equivalent to or in excess of the ASX Small Ordinaries Index (XSO) over the measurement period. The XSO is an index of total shareholder return achieved by ASX listed small cap companies which combines both share price movement and dividends paid during the measurement period (assuming that they are reinvested into shares). As a general rule, Quickstep uses a measurement period of either three (3) or five (5) years with an anniversary date of 1 October each year. For vesting to occur the Company's TSR (share price movement plus dividends) over the measurement period must be positive (i.e., if shareholders have not gained then PRs will not vest) relative to the XSO. If the XSO movement is negative over the measurement period then vesting, if any, will be at the discretion of the Board (i.e., only applies if the Company has outperformed a general fall in the small cap market by protecting against a similar fall in the Company's share price). If the Company's TSR is positive and the movement in the XSO is also positive, then the following vesting scales will apply: Performance Level Below Threshold Threshold Target Stretch and Above Company’s TSR Relative to XSO Movement of the Measurement Period < Increase in the XSO = Increase in the XSO > 100% of XSO increase & < 110% of XSO increase 110% of XSO increase > 110% of XSO increase & < 120% of XSO increase 120% of XSO increase Vesting % 0% 25% Pro-rata 50% Pro-rata 100% For PRs issued to executives during FY23, testing of the TSR hurdle will occur on the third or fifth anniversary as applicable of the commencement of the measurement period (“Test Date”). Any PRs granted will lapse if they do not vest at or before the Test Date. The Board has discretion to vary the level of vesting if circumstances during the measurement period warrant a different level of vesting or to bring forward vesting if such action is appropriate in the circumstances. Quickstep Holdings Limited 11 STRONG LEADERSHIPBOARD OF DIRECTORSDIRECTORS’ REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 24 Remuneration Report – Audited 1. Principles of Compensation Long Term Incentive - Quickstep Incentive Rights Plan (IRP) The IRP contains provisions concerning the treatment of vested and unvested rights in the event that a participant ceases employment. Unless the Board determines otherwise, if a participant ceases employment in other than special circumstances (death, total and permanent disablement, retrenchment, redundancy, permanent retirement from full- time work with the consent of the Board or other circumstances determined by the Board), all unvested rights held by the participant will lapse. Unless the Board determines otherwise, if a participant ceases employment under special circumstances, rights that were granted to the participant during the financial year in which the termination occurred will be lapsed in the same proportion as the remainder of the financial year bears to the full year. All remaining rights for which performance conditions have not been satisfied as at the date of cessation of employment will then remain "on foot", subject to the original performance conditions. If the rights vest following cessation of employment and the value of the Shares is lower at the vesting date than at the date of cessation of employment, then the value of the vested rights will be paid in cash unless otherwise determined by the Board. This provision aims to align the value that is taxed with the value that may be realised from the sale of Shares. Non-Executive Directors’ Fees Remuneration for all non-executive directors was approved at a board meeting on 13 July 2022 and remained unchanged in FY23. The table below indicates the maximum annual fees based on Directors’ responsibilities at the date of this report. Non-executive directors do not receive performance related compensation. Non-Executive Directors Director Fees p.a. Committee Fees p.a. Mr. P Largier Mrs. L Heywood Mrs. E Mannes AVM K Osley (Ret’d) $145,000 $70,000 $70,000 $70,000 n/a $20,000 $19,000 $7,000 Consequences of Performance on Shareholder Wealth In considering the Group’s performance and benefits for shareholder wealth, the RN&D committee gives regard to the following indices in respect of the current financial year and the previous four financial years. 2023 2022 2021 2020 2019 PPrrooffiitt // ((lloossss)) aattttrriibbuuttaabbllee ttoo oowwnneerrss ooff tthhee ccoommppaannyy (($$000000)) DDiivviiddeennddss ppaaiidd RReevveennuuee (($$000000)) CChhaannggee iinn sshhaarree pprriiccee RReettuurrnn oonn ccaappiittaall eemmppllooyyeedd (5,709) $nil 94,379 (33.8%) (27.9%) 786 $nil 86,675 (28.8%) 10.5% (271) $nil 85,097 (38%) 0.5% 3,891 $nil 82,252 (3.4%) 24.7% 2,693 $nil 73,275 13.0% 18.4% Return on capital employed is calculated as profit / (loss) before interest and tax (EBIT) divided by total assets, excluding deferred tax asset, less liabilities. Quickstep Holdings Limited 12 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO REMUNERATION REPORT 25 Remuneration Report – Audited 1. Principles of Compensation Service Agreements Name Initial Agreement date Revised Agreement Date Duration Notice period Termination benefits Mr. M H Burgess 8 May 2017 18 November 2021 Open Mrs. D Stefanova 7 March 2022 15 August 2022(3) Open 6 months 12 months annual TFR; and pro-rated annual bonus (at Board's discretion). If due to change of control, 100% of annual TFR is paid immediately plus pro-rated annual bonus 3 months 3 months annual TFR and pro-rated annual bonus (at Board's discretion). Mr. D F Clarke 15 May 2023 - Open 3 months 3 months annual TFR and 30 pro-rated annual bonus (at Board's discretion). STI cap as a % of Base Salary (1) LTI cap as a % of Base Salary (2) 30 70 30 - - (1) Short Term Incentive (STI) is determined on performance against KPIs set and reviewed by the RN&D Committee or the Board as appropriate. The STI cap refers to the maximum amount payable in cash, as a percentage of Base Salary. The KPIs include metrics relating to financial objectives, safety and growth. (2) Long Term Incentive (LTI) is determined on the Group's performance against relative Total Shareholder Return and is tested at the end of the measurement period (1 October 2025). The LTI cap refers to the maximum amount payable in shares as a percentage of Base Salary. This is the measure currently used in the IRP applicable to FY23. (3) KMP from August 2022 Quickstep Holdings Limited 13 STRONG LEADERSHIPBOARD OF DIRECTORSDIRECTORS’ REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 26 Remuneration Report – Audited 2. Details of Remuneration The following tables detail the remuneration received by KMP of the Group for the current and previous financial year. Name Salary / Fees STI (2) SGC Termination LTI Rights (1) Total % of remuneration performance related Executive Directors Mr. M H Burgess Non-Executive Directors Mr. P Largier Mrs. L Heywood Mrs. E Mannes AVM K Osley (Ret’d) Other KMPs Mr. S J Gaffney (4) Mrs. D Stefanova Mr. D F Clarke (5) Executive Directors Mr. M H Burgess Non-Executive Directors Mr. P Largier Mrs. L Heywood Mrs. E Mannes AVM K Osley (Ret’d) Other KMPs Mr. A J Tilley (4) Mr. S J Gaffney (4) 483,567 145,000 90,000 80,540 77,000 212,698 266,432 43,294 25,149 - - 8,460 - 16,205 25,428 4,546 - - - - - - - 2022 483,567 71,955 29,765 139,384 86,411 76,010 71,311 96,776 175,886 - - - - 20,232 - - - 7,601 951 7,856 16,205 - - - - - - - - - - - - - - - 186,973 695,689 26.9% - - - - (3,815) - - 145,000 90,000 89,000 77,000 225,088 291,861 47,840 - - - - - - - 160,287 745,574 31.1% - - - - 139,384 86,411 83,611 72,262 (10,271) 3,815 114,593 195,906 - - - - - 8.7% 1.9% (1) (2) (3) (4) (5) LTI rights include the accounting expense attributable to the current year under the IRP. The FY23 Bonus is Nil. There are no related party transactions between the Group and the KMP apart from compensation in the form of annual remuneration. Following the resignation of Mr A J Tilly, Mr. S J Gaffney commenced employment on 25 October 2021 and assumed the role of Chief Financial Officer on 27 October 2021, there is no STI payable for FY23. (resigned 31 March 2023). Mr D Clarke commence employment on 15 May 2023, no STI is payable for FY23. Quickstep Holdings Limited 14 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO REMUNERATION REPORT 27 Remuneration Report – Audited 3. Share Based Compensation Long term Incentive - Quickstep Incentive Rights Plan (IRP) At 30 June 2023 executives have accrued performance rights pursuant to the IRP. Movements in IRP rights during the year are set out below: KMP Mr. M H Burgess Mr. M H Burgess Mr. M H Burgess Mr. M H Burgess Mr. M H Burgess Mr. M H Burgess Mr. S J Gaffney Mr. S J Gaffney Tranche Refer Note FY18 FY19 FY20 FY21 FY22 FY23 FY22 FY23 Grant Date 1/12/2017 1/09/2018 1/09/2019 15/01/2021 18/11/2021 1/1/2023 16/12/2021 1/1/2023 FV per right at grant date (b) $0.690 $0.680 $0.680 $0.429 $0.320 $0.390 $0.270 $0.390 First Testing Date 31/08/2020 31/08/2021 31/08/2022 31/08/2023 1/09/2024 31/08/2025 Balance at 30-Jun- 2022 Number Granted during the year (a) Number 247,524 284,651 214,042 308,642 668,967 - - - - - - 775,658 Issued or lapsed during the year Number (247,524) - - - - - 1/09/2024 103,717 - (103,717) 31/08/2025 - 176,282 (176,282) Balance at 30-Jun- 2023 Number Fair value at grant date and maximum yet to vest $ Cum vesting level - 284,651 214,042 308,642 668,967 775,658 - - - $193,562 $145,548 $132,407 $214,128 $302,507 - - 0% 0% 0% 0% 0% 0% 0% 0% (a) The fair value of rights granted in the year is $371,257 (2022: $233,397). The total value of the rights is allocated to remuneration over the vesting period. Modification of terms of equity-settled share-based payment transactions No terms of equity-settled share-based payment transactions (including rights granted as compensation to a key management person) have been altered or modified by the issuing entity during the reporting period or the prior period. Movements in ordinary shares The movement during the reporting period in the number of ordinary shares in the Company held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows: KMP Mr. P Largier Mrs. L Heywood Mrs. E Mannes AVM K Osley (Ret’d) Mr. M H Burgess Mr. S J Gaffney^ Mr D F Clarke Ms D Stefanova Shares Held at 1 July 2022 Number Consolidation of Shares during the Year Number Received on exercise of options Number Other changes (*) Number Held at 30 June 2023 Number 323,000 19,523 42,176 55,000 420,972 20,000 - - - - - - - - - - 250,000 - - 21,739 60,000 - 41,640 - 573,000 19,523 42,176 76,739 480,972 - 41,640 - (*) Other changes represent shares that were purchased or sold during the year. (^) Mr. S J Gaffney ceased employment during the year, hence, the closing balance is not tracked. Quickstep Holdings Limited 15 STRONG LEADERSHIPBOARD OF DIRECTORSDIRECTORS’ REPORTFINANCIAL REPORTSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 28 Remuneration Report – Audited 4. Analysis of Bonuses included in Remuneration Details of the short-term incentives awarded in cash as remuneration to each Key Management Personnel (KMP) of the Company and each of the named other key management personnel of the Group are detailed below: KMP EExxeeccuuttiivvee DDiirreeccttoorr Mr. M H Burgess OOtthheerr KKMMPP Mr D F Clarke Ms D Stefanova Included in remuneration (1) % vested in year % lapsed in year - - - - - - 100% 100% 100% (1) No STI is payable for FY23 as the financial metric threshold was not achieved. During FY21 the RN&D committee undertook a market benchmarking study of Senior Executive Remuneration. The work was undertaken by Egan Associates, one of Australia’s leading independent advisers to Boards and Board Remuneration Committee Chairs for a total cost of $40,000, and included a declaration by them, that the recommendations had been made free from undue influence by KMP, to whom the recommendations related. The resultant report which was discussed and considered by the RN&D committee and the Board, presented data, findings and recommendations in relation to the market competitiveness of Quickstep’s remuneration practices for its Chief Executive Officer, Senior Executives and Non-Executive directors. The structure of the current executive STI and LTI plans for FY23 are based on the recommendations of this report. Quickstep Holdings Limited 16 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO REMUNERATION REPORT FINANCIAL REPORT 29 Financial Statements Contents Financial statements Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements A. About this Report B. Business Performance B.1 Revenue and other income B.2 Segment Reporting B.3 Profit per Share B.4 Corporate and Administrative expenses B.5 Notes to Statement of Cash Flows B.6 Income Tax Benefit C. Capital and Financial Risk Management C.1 Loans and Borrowings C.2 Leases C.3 Finance Income and Finance Expenses C.4 Financial Instruments C.5 Financial Risk Management C.6 Capital and Reserves C.7 Capital and Other Commitments C.8 Provisions D. Operating Assets and Liabilities D.1 Trade and Other Receivables D.2 Inventories D.3 Contract Assets D.4 Property, Plant and Equipment and Software D.5 Investment D.6 Goodwill E. Employee Benefits E.1 Employee Benefit Obligations E.2 Employee Benefit Expense E.3 Related Party Transactions E.4 Quickstep Incentive Rights Plan (IRP) E.5 Equity Settled Short Term Incentive F. Other Disclosures F.1 Group Entities F.2 Parent Entity Financial Information F.3 Deed of Cross Guarantee F.4 Auditors’ Remuneration F.6 Subsequent Events F.7 New Accounting Standards Not Yet Adopted Directors’ Declaration Lead Auditor’s Independence Declaration Independent Auditor’s Report to the Members Page 18 19 20 21 22 27 27 28 29 29 30 33 34 36 36 37 41 42 42 43 44 44 45 47 48 49 49 50 51 52 53 53 54 55 55 55 56 57 58 Quickstep Holdings Limited 17 STRONG LEADERSHIPBOARD OF DIRECTORSDIRECTORS’ REPORTSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 30 Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2023 Revenue Cost of sales of goods Gross profit Other income Research and development expenses Business development expenses Corporate and administrative expenses Impairment expense Profit/(Loss) from operating activities Finance income Finance expenses Net finance costs Profit / (loss) before income tax Income tax benefit / (expense) Profit / (loss) for the year Other comprehensive income / (loss) net of income tax Item that may be reclassified to profit or loss Cash flow hedges Exchange difference on translation of a foreign operation Other comprehensive income / (loss) for the period, net of income tax Total comprehensive income/(loss) for the year Profit per share: Basic profit / (loss) per share Diluted profit/ (loss) per share Notes 2023 $000 2022 $000 B.1 B.4 D.6 C.3 B.6 B.3 B.3 94,379 (84,716) 9,663 86,675 (73,411) 13,264 111 419 (908) (1,244) (8,595) (2,287) (3,260) 39 (2,966) (2,927) (6,188) 478 (5,709) 492 (193) 299 (5,410) Cents (7.96) (7.96) (1,318) (1,515) (9,033) - 1,817 45 (2,027) (1,982) (165) 951 786 (575) 73 (502) 284 Cents 1.10 1.08 The consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. Quickstep Holdings Limited 18 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 31 Consolidated Balance Sheet as at 30 June 2023 e she ASSETS Current assets Cash and cash equivalents Term deposits Trade and other receivables Prepayments and other assets Inventories Contract assets Total current assets Non-current assets Property, plant and equipment and software Right-of-use asset Goodwill Investments Deferred tax asset Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Provisions Financial instruments Loans and borrowings Contract Liabilities Lease liabilities Employee benefit obligations Total current liabilities Non-current liabilities Loans and borrowings Lease liabilities Provisions Employee benefit obligations Total non-current liabilities Total liabilities Net assets EQUITY Share capital Reserves Accumulated losses Total equity Notes 2023 $000 2022 $000 B.5 C.5 D.1 D.2 D.3 D.4 C.2 D.6 D.5 B.6 C.8 C.4 C.1 D.3 C.2 E.1 C.1 C.2 C.8 E.1 C.6 5,611 - 12,297 1,715 12,902 11,158 43,683 11,819 13,649 - 3,044 5,530 34,042 77,725 3,021 891 9,043 1,639 14,910 10,294 39,798 13,999 15,551 2,287 3,044 5,052 39,933 79,731 13,489 19,393 - 101 1,200 8,868 1,856 2,046 - 593 2,564 1,500 1,628 1,990 27,560 27,668 12,100 15,697 3,448 1,702 32,947 60,507 17,218 7,282 17,443 3,448 1,515 29,688 57,356 22,375 120,785 6,683 120,785 6,131 (110,250) (104,541) 17,218 22,375 The consolidated balance sheet should be read in conjunction with the accompanying notes. Quickstep Holdings Limited 19 STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 32 Consolidated Statement of Changes in Equity for the year ended 30 June 2023 2023 Balance at 1 July 2022 Profit / (loss) for the year Other comprehensive (loss) Foreign currency translation difference for foreign operations Effective portion of changes in fair value of cash flow hedges Total comprehensive income/ (loss) for the year Transactions with owners of the company: Share based payments expenses 2022 Balance at 1 July 2021 Profit / (loss) for the year Other comprehensive (loss) Foreign currency translation difference for foreign operations Effective portion of changes in fair value of cash flow hedges Total comprehensive income/ (loss) for the year Transactions with owners of the company: Share based payments expenses Share capital $000 Translation reserve $000 Cash flow hedges reserve $000 Share based payments $000 Accumulated losses $000 Total equity $000 120,785 (174) (594) 6,899 (104,541) 22,375 - - - - - - (193) - (193) - - - 492 492 - - - - (5,709) (5,709) - - (193) 492 (5,709) (5,410) - (102) 253 7,152 - 253 (110,250) 17,218 120,785 (247) (19) 6,733 (105,327) 21,925 - - - - - - 73 - 73 - - - (575) (575) - - - - - 786 786 - - 73 (575) 786 284 166 6,899 - 166 (104,541) 22,375 Balance at 30 June 2023 120,785 (367) Balance at 30 June 2022 120,785 (174) (594) The consolidated statement of changes in equity should be read in conjunction with the accompanying notes. Quickstep Holdings Limited 20 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 33 Consolidated Statement of Cash Flows for the year ended 30 June 2023 Cash flows from operating activities Cash receipts in course of operations Interest received Interest paid Other income Cash payments in the course of operations Net cash from operating activities Cash flows from investing activities Notes 2023 $000 2022 $000 101,062 87,958 39 (939) - (98,255) 1,907 45 (817) 318 (84,169) 3,335 B.5 Acquisition costs of plant and equipment and intangible assets (890) (1,861) Disposal of plant and equipment and intangible assets Proceeds from government grants for capital works Investments in Carbonix & Swoop Aero Receipts/(payment) for term deposit Net cash (used in) investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Payment of lease liabilities Payment of borrowing costs Net cash (used in) / from financing activities Net (decrease) /increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents 10 482 - 891 493 18,600 (15,146) (2,790) (47) 617 3,018 3,021 (429) Cash and cash equivalents at end of period The consolidated statement of cash flows should be read in conjunction with the accompanying notes. 5,611 - 104 (1,500) - (3,257) 6,715 (4,537) (1,308) - 870 948 2,353 (280) 3,021 Quickstep Holdings Limited 21 STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 34 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 A. About this Report Introduction This is the financial report of Quickstep Holdings Limited (the “Company”) and its controlled entities (the “Group”). The Company is domiciled in Australia and the Group is a for-profit entity. The Group is at the forefront of advanced composites manufacturing and technology development and is the largest independent aerospace- grade advanced composite manufacturer in Australia, currently partnering with some of the world’s largest aerospace/defence organisations. Further the Company offers extensive maintenance, repair and overhaul services (MRO) across a wide range of composite, bonded and conventional metal aircraft structures to defence, government and commercial aircraft operators. Materiality Information is only included in the financial report to the extent that it has been considered material and relevant to the understanding of the financial statements. Factors that influence if a disclosure is material and relevant, include whether: • • • • • the dollar amount is significant in size (quantitative factor) the dollar amount is significant by nature (qualitative factor) the Group’s results cannot be understood without the specific disclosure (qualitative factor) it is critical to allow a user to understand the impact of significant changes in the Group’s business during the period; and it relates to an aspect of the Group’s operations that is important to its future performance. Statement of Compliance These general-purpose financial statements have been prepared in accordance with the Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. The consolidated financial statements of the Group also comply with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The consolidated financial statements were authorised for issue by the Board of Directors on 25 August 2023. Basis of Preparation The financial statements have been prepared on the historical cost basis. These consolidated financial statements are presented in Australian dollars, which is the Parent’s functional currency. Rounding of Amounts The Company is of a kind referred to in Class Order 2016/191 issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the financial statements and Directors’ report. Amounts in the financial statements and Directors’ report have therefore been rounded off to the nearest thousand dollars, or in certain cases, to the nearest dollar. Quickstep Holdings Limited 22 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 35 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 A. About this Report Accounting Estimates and Judgements The preparation of financial statements in conformity with AASBs requires management to make judgements, estimates and assumptions about future events. Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies are described below: Going concern The financial statements have been prepared on the going concern basis which contemplates the continuity of normal business activities and the realisation of assets and discharge of liabilities in the normal course of business. The Group has incurred a loss after tax for the year ended 30 June 2023 of $5,709,000 (30 June 2022 profit $786,000). The Group has net assets of $17,218,000 (30 June 2022 $22,375,000) and net current assets of $16,123,000 (30 June 2022 $12,130,000). Current loans and borrowings are $3,056,000 (including lease liabilities of $1,856,000) compared to 30 June 2022 $4,192,000. Operating cash inflow for the year was $1,907,000 (30 June 2022 $3,335,000). In February 2023, Quickstep refinanced its existing debt facilities with the Commonwealth Bank of Australia. Within a total facility limit of $15.7 million, $13.6 million is secured with a term of 3 Years, $1 million up to 5 Years with the balance of $1.1 million subject to annual review. $3.6 million of the facility is subject to quarterly amortisation over a 3 Year period (ie: principal repayments of $300,000 per quarter). At 30 June 2023 facilities are fully drawn. Prior to 30 June 2023, debt covenant calculation modifications were approved, which excluded the Aftermarket Line of Business results from the Debt to EBITDA covenant and Debt Service Cover ratio as at June 2023 and September 2023. Management have prepared 12 month cashflow forecasts underpinning the basis of preparation as a going concern. Management prepared cashflow forecasts for the Group are dependent on a combination of the following assumptions: § § § § improving the trading performance of the Aftermarket business following the recent announcement of renewed and new customer commitments; continuing the implementation of cash management controls including working with suppliers to extend payment terms; executing on plans to return to a lower level of working capital inventory through a combination of reduced purchasing and a return to normalised production; operationalising contractually available upfront quarterly performance based receipts from a key customer to address long cash conversion cycles and delivering on sales required under previously agreed performance based receipts; § management of specific key equipment reliability issues (Aerostructures impact) and related impacts on trading performance, and § making supplier payments to bring overdue suppliers within originally agreed payment terms. The going concern basis presumes that a combination of the above funding and operational solutions, as deemed appropriate by the Directors, will be achieved and that the realisation of assets and settlement of Quickstep Holdings Limited 23 STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 36 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 A. About this Report liabilities will occur in the normal course of business. The combined effect of the above represents a material uncertainty as to whether the Group would continue as a going concern. The directors of Quickstep consider that the Group will continue to fulfil all obligations as and when they fall due for the foreseeable future and accordingly consider that the Group’s financial statements should be prepared on a going concern basis. Accordingly, the financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the Group not continue as a going concern. Recognition of tax benefits A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Future taxable profits are estimated based on future profits forecast taking into account income tax reconciliation required under the current tax legislation. Provisions Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event, it is probable that settlement will be required, and the obligation can be reliably estimated. Provisions which are not expected to be settled within 12 months are measured at the present value of the estimated future cash outflows to be made by the group. Goodwill Assessment The Group had initially recognised goodwill of $2,287,000 in relation to its investment in Quickstep Aerospace Services Pty Ltd (“QAS”), following its acquisition on 18 February 2021. The QAS operation is based in Tullamarine, Victoria, Australia and represents the Group’s Aftermarket business segment. During the financial year ended 30 June 2023, the Group has recognised a Goodwill impairment of ($2,287,000) (2022: $nil) in respect of this Goodwill. Quickstep Holdings Limited 24 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 37 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 A. About this Report Significant Accounting Policies The accounting policies have been applied consistently to all periods presented in these consolidated financial statements and have been applied consistently by all entities in the Group. Other significant accounting policies are contained in the notes to the consolidated financial statements to which they relate. Basis of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Quickstep Holdings Limited (“Company” or “parent entity”) as at 30 June 2023 and the results of all subsidiaries for the year then ended. Quickstep Holdings Limited and its subsidiaries together are referred to in the financial statements as the consolidated entity or the Group. A subsidiary is any entity controlled by the parent entity. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and, has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group, and de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset of the subsidiary. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Foreign currency translation Transactions, assets and liabilities denominated in foreign currencies are translated into Australian dollars at reporting date using the following exchange rates: Foreign currency amount Applicable exchange rate Transactions Date of transaction Monetary assets and liabilities Reporting date Foreign exchange gains and losses resulting from translation are recognised in the Income Statement, except for qualifying cash flow hedges which are deferred to equity. On consolidation, the assets, liabilities, income and expenses of foreign operations are translated into Australian dollars using the following applicable exchange rates: Foreign currency amount Applicable exchange rate Income and expenses Average monthly rate Assets and liabilities Equity and reserves Reporting date Historical date Foreign currency differences resulting from translation are recognised in other comprehensive income and presented in the foreign currency translation reserve in equity. When a foreign operation is disposed of, such that there is a loss of control, significant influence or joint control, the relevant amount in the foreign currency translation reserve is transferred to the statement of comprehensive income. Quickstep Holdings Limited 25 STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 38 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 B. Business Performance This section provides the information that is most relevant to understanding the financial performance of the Group during the financial year and, where relevant, the accounting policies applied, and the critical judgements and estimates made. B.1 B.2 B.3 B.4 B.5 B.6 Revenue and other income Segment Reporting Profit per Share Corporate and Administrative expenses Notes to Statement of Cash Flows Income Tax Benefit B.1 Revenue and other income Recognition and Measurement Revenue Under AASB 15 the Group has determined that for made-to-order parts, the customer controls all the work in progress as the products are being manufactured. This is because under those contracts, parts are made to a customer’s specification and if a contract is terminated by the customer, then the Group is entitled to reimbursement of the costs incurred to date, including a reasonable margin. Therefore, revenue from these contracts and the associated costs are recognised over time – i.e., before the goods are delivered to the customers’ premises. Invoices are issued according to contractual terms. Un-invoiced amounts are presented as contract assets. The Group uses the input method (costs-incurred) to measure progress as this measure faithfully depicts the transformation of the work in progress. Under this approach, the entity recognises revenue based on the costs incurred to date for made to order parts. To the extent to which amounts are received in advance of the provision of the related parts, the amounts are recorded as contract liability and credited to the statement of comprehensive income as goods delivered. Research and development expenses Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the statement of comprehensive income as an expense as incurred. Quickstep Holdings Limited 26 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 39 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 B. Business Performance B.1 Revenue and other income Government grants Grants from the government that compensate the Group for expenses incurred are recognised in the profit and loss as Other Income on a systematic basis in the periods in which the expenses are recognised. Grants that the Group receives in relation to assets have been presented as a deduction in arriving at the carrying amount of the asset. The Group has complied with all grant conditions. Segment Reporting B.2 The Group has identified its operating segments based on the internal reports reviewed by the CEO who is the Chief Operating Decision Maker responsible for decision making in respect of allocation of resources. The reportable segment of the group are 1) Aerostructures, which is involved in manufacturing of aerospace composites products 2) Aftermarket, which is responsible for maintenance, repair, and overhaul services and 3) Applied Composites which provide advanced composite based engineering and manufacturing services. The segment measure of performance is gross margin. Geographical Information In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the assets. Revenue: United States of America Australia United Kingdom Total Non-current assets: United States of America Australia Total 2023 $000 2022 $000 70,081 23,924 374 94,379 - 34,042 34,042 63,219 23,456 - 86,675 - 39,933 39,933 Operating Segment Information 2023 Aerostructures Aftermarket Revenue Gross Margin Other Expenses Profit/(loss) before income tax Total Assets Total Liabilities Additions to Non Current Assets $’000 87,386 14,212 - 56,974 36,935 320 $’000 5,333 (3,587) - 9,347 5,347 39 Quickstep Holdings Limited Applied Composites $’000 1,660 (962) - Corporate (unallocated) $’000 - - 15,851 Combined QHL Group $’000 94,379 9,663 15,851 2,706 1,021 531 8,698 17,204 - (6,188) 77,725 60,507 890 27 STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 40 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 B. Business Performance Operating Segment Information 2022 Aerostructures Aftermarket $’000 82,059 15,151 - 62,984 40,574 1,098 $’000 3,403 (1,842) - 5,456 5,490 182 Applied Composites $’000 1,213 (45) - Corporate (unallocated) $’000 - - 13,429 Combined QHL Group $’000 86,675 13,264 13,429 1,094 1,081 - - 10,196 10,212 - (165) 79,730 57,357 1,280 Revenue Gross Margin Other Expenses Profit/(loss) before income tax Total Assets Total Liabilities Additions to Non Current Assets Major Customers Revenues from the three major customers of the Group’s Aerostructures segment represented approximately $49,802,000 (2022: $44,105,000), $20,173,000 (2022: $18,829,000) and $17,000,000 (2022: $16,469,000) respectively of the Group’s total revenues. Profit per Share B.3 The calculation of basic profit per share is based on the profit attributable to ordinary shareholders and a weighted-average number (WAN) of ordinary shares outstanding. Profit / (loss) attributable to ordinary shareholders Weighted average number of ordinary shares: Shares at beginning of period Shares issued during the year Weighted average number of shares used as the denominator in calculating basic earnings per share Adjustment for calculation of diluted earnings per share 2023 $ (5,709,137) 2022 $ 785,615 2023 Number 2022 Number 71,726,214 - 71,626,934 98,210 71,726,214 71,725,144 Under share based payment arrangements (anti dilutive in 2023) - 1,141,891 Weighted average number of shares used as the denominator in calculating diluted earnings per share 71,726,214 72,867,035 Basic profit / (loss) cents per share Diluted profit / (loss) cents per share (7.96) (7.96) 1.10 1.08 Rights granted under IRP which have passed their first testing date are considered to be potential ordinary shares. They have been included in the determination of diluted earnings per share, unless they are considered anti-dilutive. Quickstep Holdings Limited 28 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 41 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 B. Business Performance Corporate and Administrative expenses B.4 Corporate and administrative expenses include a $400,000 writeback of legal accruals previously held by a foreign controlled entity. Any outflow related to those accruals in no longer considered probable. B.5 Notes to Statement of Cash Flows Cash and Cash Equivalents Cash at bank and in hand Reconciliation of Net Profit to Net Cash Provided by Operating Activities Profit / (loss) for the period Adjustments for: ROU asset amortisation Depreciation and amortisation (Gains)/loss on asset disposals Impairment loss Share based payment expense Net foreign currency losses Adjustment for government grant capitalised Legal accrual writeback Change in operating assets and liabilities: Increase in trade and other receivables Increase in prepayments and other assets (Increase)/decrease in inventories Increase in contract assets Increase in deferred tax asset (Decrease)/increase in trade and other payables (Decrease)/increase in contract liabilities (Increase) /decrease in prepaid interest Increase in employee benefit obligations Net cash from operating activities 2023 $000 5,611 2023 $000 (5,709) 2,027 2,851 28 2,287 253 727 400 - (3,256) (76) 2,008 (865) (478) (5,900) 7,369 - 242 1,907 2022 $000 3,021 2022 $000 786 1,975 2,859 7 - 166 346 - (1,158) (197) (401) (5,250) (2,242) (951) 7,199 - - 196 3,335 Quickstep Holdings Limited 29 STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 42 2023 $000 2022 $000 1,636 - 1,636 (478) (680) 478 2023 $000 (6,188) 1,856 (8) (29) 29 (680) - (690) 478 232 - 232 (239) 958 951 2022 $000 (165) 50 (57) 141 (141) - 958 - 951 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 B. Business Performance B.6 Income Tax Benefit Reconciliation of Income Tax Benefit Recognised in Statement of Profit or Loss Numerical reconciliation of income tax benefit to prima facie tax payable is as follows: Current tax expense Current Year tax expense Changes in estimates related to prior year Deferred tax expense Origination and reversal of temporary difference Tax losses (not recognised)/recognised Income tax benefit Profit / (loss) from continuing operations Tax (expense)/benefit at the Australian tax rate of 30% (2022 – 30%) Expenditure not allowable for income tax purposes Effect of different tax rate for overseas subsidiaries Deferred tax asset related to foreign jurisdictions Current year losses for which no deferred tax asset is recognised Tax losses brought to account Non deductible impairment Income tax benefit Deferred tax assets/(liabilities) Particulars Provision for Annual Leave Other provisions Superannuation accrual Provision for LSL Work in progress – deductible Lease liabilities Other expenditure PPE & Intangibles and ROU Tax losses carried forward Total deferred tax balances Balance as on 1 July 2022 $’000 Recognised in the P&L $’000 Net Balance as on 30 June 2023 $’000 539 382 74 332 146 5,721 75 (3,631) 1,414 5,052 75 239 2 179 (67) (455) (66) 571 - 478 614 621 76 511 79 5,266 9 (3,060) 1,414 5,530 Quickstep Holdings Limited 30 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 43 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 B. Business Performance B.6 Income Tax Benefit Particulars Provision for Annual Leave Other provisions Super Provision for LSL Work in progress – deductible Prov. For stock obsolescence Lease liabilities Other expenditure PPE & Intangibles and ROU Tax losses carried forward Total deferred tax balances Balance as on 1 July 2021 $’000 Recognised in the P&L $’000 Net Balance as on 30 June 2022 $’000 564 155 89 251 108 (8) 5,836 201 (3,797) 702 4,101 (25) 227 (15) 81 38 8 (115) (126) 166 712 951 539 382 74 332 146 - 5,721 75 (3,631) 1,414 5,052 The deductible temporary differences and tax losses do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of certain tax losses because the Group considers it prudent to defer recognition until the Group generates consistently taxable income. The tax losses are subject to availability and continued assessment under the ATO testing rules. Tax Losses not brought to Account The gross amount of unused tax losses for which no deferred tax asset has been recognised Tax Consolidation Legislation 2023 $000 2022 $000 57,614 53,046 Quickstep Holdings Limited and its 100% owned Australian resident subsidiaries have formed a tax consolidated Group effective from 1 July 2010. Recognition and Measurement Income tax Income tax expense comprises current and deferred tax. Current tax and deferred tax is recognised in profit and loss except to the extent that it related to a business combination, or items recognised directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income for the year, using tax rates enacted or substantially enacted at reporting date, and any adjustment to tax payable in respect of previous years. Quickstep Holdings Limited 31 STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 44 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 B. Business Performance B.6 Income Tax Benefit Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised, or the deferred income tax liability is settled. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. The Group has recognised a deferred tax asset relating to tax losses to the extent there are sufficient taxable temporary differences against which the unused tax losses can be utilised. Utilisation of tax losses also depends on the ability of the entity to satisfy certain tests at the time the losses are recouped. The recognised tax losses are subject to the shareholder continuity test. The Group has reviewed tax losses and determined that for certain losses it is probable that future taxable profits will be available against which the recognised tax losses can be utilised. Quickstep Holdings Limited 32 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 45 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 C. Capital and Financial Risk Management This section provides information relating to the Group’s capital structure and its exposure to financial risks, how they affect the Group’s financial position and performance and how the risks are managed. C.1 C.2 C.3 C.4 C.5 C.6 C.7 C.8 Loans and Borrowings Leases Finance Income and Finance Expenses Financial Instruments Financial Risk Management Capital and Reserves Capital and other Commitments Provisions C.1 Loans and Borrowings 2023 Non- current $000 2,100 10,000 12,100 Current $000 1,200 - 1,200 Total $000 Current $000 3,300 10,000 13,300 2,564 - 2,564 2022 Non- current $000 1,282 6,000 7,282 Total $000 3,846 6,000 9,846 Effective interest rate 6.80% 6.80% Year of maturity 2026 2026 2023 Maximum facility value $000 2022 Maximum facility value $000 3,300 10,000 3,846 6,000 Secured bank loan Working capital facility Term and Debt Repayment Schedule Secured bank loan Short term facility Secured Bank Loan On 6 March 2023 Quickstep Holdings Limited refinanced with Commonwealth Bank of Australia (CBA). The new arrangement includes a working capital facility of $10 million and a term loan of $3.6 million. The working capital facility requires repayment in 3 years. The term loan is reduced by quarterly repayments of $300,000. The interest rate on the facility comprises a variable base rate and fixed margin with quarterly repayments to be completed by June 2026. The facility is secured against the working capital of the group. Quickstep Holdings Limited 33 STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 46 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 C. Capital and Financial Risk Management C.1 Loans and Borrowings Working capital facility On 17 February 2023 Quickstep Holdings Limited executed a loan agreement with CBA for $13,600,000 to refinance the existing ANZ and EFA facilities. The working capital facility has been extended and is required to be repaid by June 2026. The interest rate on the facility comprises a variable base rate and fixed margin. Loan covenant The group exceeded its EBITDA and Debt Service Cover covenant threshold in the fourth quarter of 2023. However, management obtained a waiver prior to 30 June 2023 from CBA bank and modified the June 2023 and September 2023 covenant compliance dates for Debt to EBITDA and Debt Service Cover. Accordingly, the loans were not payable on demand at 30 June 2023. Recognition and Measurement Non-derivative financial liabilities All financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. C.2 Leases The Group leases assets including properties, production equipment and IT equipment. The Group recognizes a right-of- use asset and lease liability. Lease liabilities are measured at the present value of the remaining lease payments, discounted using the interest rate implicit in the lease, or if that is not available, then Group’s incremental borrowing rate at the lease commencement date. Right-of-use asset is initially measured at cost and subsequently depreciated over a straight line to the end of the lease term. The Group has elected not to recognize right-of-use assets and lease liabilities of low value assets or short term leases. The Group recognises the lease payments associated with these leases as an expense on a straight line basis over the term of the lease. Right-of-use assets Right-of-use assets related to leased properties and equipment are recognised under AASB 16 and presented in the following table. Right-of-use assets: Opening net book amount Adjustments to ROU assets due to reassessment or modification Addition of new leases Amortisation charge for the year Closing net book amount Quickstep Holdings Limited 2023 $000 2022 $000 15,551 16,526 - 125 (2,027) 13,649 495 505 (1,975) 15,551 34 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 47 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 C. Capital and Financial Risk Management C.2 Leases Lease liabilities Lease liabilities related to leased properties and equipment are recognised under AASB 16 and presented in the following table. Lease liabilities: Current Non-current Total lease liabilities 2023 $000 2022 $000 1,856 15,697 17,553 1,628 17,443 19,071 Amounts recognised in Consolidated Statement of Profit or Loss The following table summarises expenses related to AASB 16 leases that are included in the Consolidated Statement of Profit or Loss. AASB 16 leases: Interest on lease liabilities Amortisation charge Total expenses 2023 $000 2022 $000 1,149 2,027 3,176 1,226 1,975 3,201 Amounts recognised in Consolidated Statement of cash flows The following table summarises cashflows related to AASB 16 leases that are included in the Consolidated Statement of Cashflows. AASB 16 leases: Total cash outflow for leases – Principal Total cash outflow for leases – Interest Total cashflows 2023 $000 2022 $000 (1,641) (1,149) (2,790) (82) (1,226) (1,308) Quickstep Holdings Limited 35 STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 48 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 C. Capital and Financial Risk Management C.3 Finance Income and Finance Expenses Finance income Interest income Finance expenses Interest expense on liabilities measured at amortised cost Interest expenses leased liabilities Foreign currency gains or (losses) Other expenses and adjustment to borrowing costs Finance expenses Net finance costs Recognition and Measurement Finance income and finance expenses 2023 $000 39 (940) (1,149) (727) (150) (2,966) (2,927) 2022 $000 45 (347) (1,226) (346) (108) (2,027) (1,982) Finance income comprises interest income on funds invested (including securities designated as FVOCI). Interest income is recognised as it accrues in profit and loss, using the effective interest method. Finance expenses comprise interest expense on borrowings calculated using the effective interest method, transaction costs, unwinding discounting of provisions, and foreign exchange gains and losses. The interest expense component of finance lease payments is recognised in the profit and loss using the effective interest method. C.4 Financial Instruments Current liability Forward foreign exchange contracts – cash flow hedges Recognition and Measurement 2023 $000 (101) 2022 $000 (593) Recognition When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in Other Comprehensive Income and accumulated in the cash flow hedge reserve. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit and loss. The Group uses forward foreign exchange contracts to hedge its currency exposure risk in relation to sales in US dollars – all hedges have a maturity date less than one (1) year from reporting date. The Group documents at the inception of the hedging transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. Valuation of Forward Exchange Contracts Foreign currency forward contracts are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The fair value is determined using the quoted forward exchange rates at the reporting date and present value calculations based on high quality credit yield curves in the respective currencies. This is considered a level 2 fair value under the fair value hierarchy. Quickstep Holdings Limited 36 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 49 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 C. Capital and Financial Risk Management Financial Risk Management C.5 Overview The Group has exposure to the following risks from its use of financial instruments: • Credit risk; • • Market risk. Liquidity risk, and This note presents information about the Group’s exposure to each of the above risks, its objectives, policies and processes for measuring and managing risk, and the management of capital. Further quantitative disclosures are included throughout these financial statements. The Company’s Board of Directors has overall responsibility for the establishment and oversight of the risk management framework and is responsible for developing and monitoring risk management policies. Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Group’s Audit, Risk and Compliance Committee oversees how management monitors compliance with the Group’s risk management policies and formally documented procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. Credit Risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group’s receivables from customers and cash balances and deposits. The carrying amount of the Group’s financial assets represents the maximum credit exposure. Trade receivables The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers other characteristics including the default risk of the industry and country in which customers operate, as these factors may have an influence on credit risk. Goods are generally sold subject to retention of title clauses, so that in the event of non-payment the Group may have a secured claim. The Group does not require collateral in respect of trade and other receivables. Cash balances and deposits The Group limits its exposure to credit risk by only investing in liquid securities and only with counterparties that have a credit rating of at least A+ from Standard & Poor’s. Given these high credit ratings, management has assessed the risk that counterparties fail to meet their obligations as low. As at the reporting date, financial assets are not impaired. Quickstep Holdings Limited 37 STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 50 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 C. Capital and Financial Risk Management C.5 Financial Risk Management Exposure to credit risk The Group’s maximum exposure to credit risk for trade receivables and contract assets at the reporting date by geographic region was: Australia United States of America The following are the contractual maturities of Trade receivables: 2023 $000 15,014 8,369 23,383 2022 $000 12,861 6,406 19,267 Carrying amount $000 Contractual Cash flows $000 Current $000 +30 days $000 +60 days $000 +90 days $000 +120 days $000 12,225 11,158 12,225 11,158 7,096 11,158 1,024 874 354 2,877 8,973 10,294 8,973 10,294 8,454 10,294 209 276 9 25 At 30 June 2023 Trade receivables Contract Assets At 30 June 2022 Trade receivables Contract Assets Liquidity Risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquid assets to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. Typically, the Group ensures that it has sufficient cash or funds otherwise reasonably available to it from fundraising activities to meet expected operational expenses, including the servicing of financial obligations. This excludes the potential impact of circumstances that cannot reasonably be predicted. The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements: At 30 June 2023 Trade and other payables Secured bank loan Short term facility – CBA Financial Instruments Lease liabilities Contractual Cash flows $000 (13,489) Less than 6 months $000 (13,489) 10,000 (12,040) (3,468) (101) (620) (340) (101) Carrying amount $000 13,489 3,300 101 17,553 44,443 6 – 12 months $000 Between 1 and 2 years $000 Between 2 and 5 years $000 Greater than 5 years $000 - (620) (340) - (1,282) (680) - (946) (10,680) (8,479) (20,105) - - (8,556) (8,556) (22,641) (1,407) (51,739) (15,957) (1,437) (2,397) (2,762) (4,742) Quickstep Holdings Limited 38 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 51 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 C. Capital and Financial Risk Management C.5 Financial Risk Management Carrying amount $000 19,393 3,846 6,000 593 19,071 48,903 At 30 June 2022 Trade and other payables Secured bank loan Working capital facility – EFA Financial Instruments Lease liabilities Market Risk Contractual Cash flows $000 (19,393) Less than 6 months $000 (19,393) - (3,846) (6,333) 593 (19,071) (641) (1,923) - 593 (852) - - (915) (49,236) (21,479) (2,838) 6 – 12 months $000 Between 1 and 2 years $000 Between 2 and 5 years $000 Greater than 5 years $000 - (1,282) (6,333) - (1,767) (9,382) - - - - - - - - (3,534) (3,534) (12,003) (12,003) Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Interest rate risk The Group has entered into a variable rate loan agreement for a period of 3 years. The applicable interest rate is re-set on a quarterly basis in accordance with the 90 days bank bill rate. The Group is exposed to interest rate risk pre-dominantly on cash balances and deposits and loans and borrowings. Given the relatively short investment horizon for these, management has not found it necessary to establish a policy on managing the exposure of interest rate risk. Profile At the reporting date the interest rate profile of the Group’s interest-bearing financial assets/ (liabilities) was: Fixed rate instruments Term deposits Variable rate instruments Cash and cash equivalents Secured bank loan Working capital facility agreement – ANZ Working capital facility agreement - CBA Total variable rate instruments 2023 $000 2022 $000 - 891 5,611 (3,300) - (10,000) (7,689) 3,021 (3,846) (6,000) - (6,825) Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points in interest rates at the reporting date would have increased (decreased) profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis as FY22. Variable rate instruments – increase by 100 basis points Variable rate instruments – decrease by 100 basis points 2023 $000 (133) 133 2022 $000 (98) 98 Quickstep Holdings Limited 39 STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 52 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 C. Capital and Financial Risk Management C.5 Financial Risk Management Currency risk The Group is exposed to currency risk on sales, purchases and cash holdings that are denominated in a currency other than the respective functional currencies of Group entities, primarily the Australian dollar (AUD), Euro (EUR), Great Britain Pounds (GBP) and US Dollar (USD). The currencies in which these transactions primarily are denominated are AUD, EUR and USD. In respect of other monetary assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances. The Group’s investment in its German subsidiary is not hedged as the currency positions are considered to be long-term in nature. The Group’s exposure to foreign currency risk at the end of the reporting period was as follows: 2023 USD 000 2023 EUR 000 2023 GBP 000 2022 USD 000 2022 EUR 000 2022 GBP000 Receivables Cash Trade payables 8,369 4,654 (4,352) 8,671 - - (19) (19) - - (61) (61) 6,406 997 (7,090) 313 - - (33) (33) - - (201) (201) The following significant exchange rates applied have been applied: AUD v USD AUD v EUR AUD v GBP Average rate 2023 0.6735 0.6440 0.5598 2022 0.7261 0.6439 0.5454 Sensitivity analysis A 10 percent movement of the Australian dollar against the following currencies at 30 June would have effected the movement of financial instruments denominated in a foreign currency and affected profit and loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. The analysis is performed on the same basis as FY22. Index US/AUD exchange rate – increase (10%) US/AUD exchange rate – decrease 10% EUR/AUD exchange rate – increase (10%) EUR/AUD exchange rate – decrease 10% GBP/AUD exchange rate – increase (10%) GBP/AUD exchange rate – decrease 10% Fair Value Hierarchy Profit or loss 2023 $000 (1,192) 1,457 3 (3) 11 (13) 262 2022 $000 (41) 50 5 (6) 32 (39) 1 Equity, net of tax 2022 $000 2023 $000 (1,192) 1,457 3 (3) 11 (13) 262 (41) 50 5 (6) 32 (39) 1 Financial assets and liabilities, including foreign currency hedges are considered level 2 in the fair value hierarchy. The carrying value of financial assets and liabilities carried at amortised costs, approximate their fair value. During the year, there have been no transfers between levels in the fair value hierarchy. The fair value of investments are considered Level 3 based on latest available share sales of the investee. Quickstep Holdings Limited 40 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 53 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 C. Capital and Financial Risk Management C.6 Capital and Reserves Capital Management The Group’s objectives are to safeguard the Group’s ability to continue as a going concern and maintain a strong capital base sufficient to maintain future development in accordance with the business strategy. In order to maintain or adjust the capital structure, the Group may return capital to shareholders or issue new shares. The Group’s focus has been to raise sufficient funds through equity and borrowings to fund its working capital, business growth and commercialisation of technology as outlined in note A Going concern (p.23). There were no changes in the Group’s approach to capital management during the year. Movements in Share Capital Opening balance Consolidation of Issued Shares Shares issued under share based payments arrangements Shares issued to Quickstep Employee Exempt Share Plan Closing balance 2023 Shares 71,726,214 - - - 71,726,214 2022 Shares 716,269,344 (644,641,340) - 98,210 71,726,214 2023 $000 2022 $000 120,785 - - - 120,785 120,785 - - - 120,785 During the year, the Company issued NIL (2022: NIL) shares pursuant to share-based payment arrangements with certain key management personnel and issued NIL (2022: 98,201) shares to its employees under Exempt Share Plan. The Company consolidated its issued share capital (in the ratio of one share for every 10 shares held) at its 2021 Annual General Meeting of Shareholders on 18 November 2021. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. The Company does not have authorised capital or par value in respect of its issued shares. All issued shares are fully paid. There are Nil (2022: Nil) unissued ordinary shares of Quickstep Holdings Limited under option at the date of this report. No options were granted during the year and since the end of the financial year. Nature and purpose of reserves Translation reserve The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations, as well as the effective portion of any foreign currency differences arising from hedges of a net investment in a foreign operation. Cash flow hedge reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments used in cash flow hedges pending subsequent recognition in profit or loss or directly included in the initial cost or other carrying amount of a non-financial asset or non-financial liability. Share based payments reserve The reserve for share-based payments comprises the fair value of equity instruments granted by the Group based on market prices taking into account the terms and conditions upon which the instruments were granted. Quickstep Holdings Limited 41 STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 54 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 C. Capital and Financial Risk Management C.7 Capital and Other Commitments Capital Commitments Significant capital expenditure contracted for at the end of the reporting period but not recognised as liabilities is as follows: Property, plant and equipment Other Commitments – Pledged as Collateral against Secured Bank Loan 2023 $000 72 2022 $000 52 On 17 February 2023 Quickstep Holdings Limited (the Company) executed a loan agreement with Commonwealth Bank Limited (CBA) to refinance the existing ANZ and EFA facilities. The Company has provided CBA with a Corporate Guarantee and Indemnity as well as a security interest over the Group’s assets by way of a General Security Agreement (GSA). Cash and cash equivalents Trade and other receivables Inventories Property, plant and equipment 2023 $000 5,611 12,297 12,902 11,819 2022 $000 3,021 9,043 14,910 13,998 Under the agreement with CBA, Quickstep Holdings Limited and the other Group companies party to the GSA have agreed to the following restricted dealings. Without the consent of CBA they may not: • Create or allow another interest in any Collateral other than and Permitted Encumbrance, • Dispose, or part with possession, of any Collateral. Term of Liability Subject to annual review Currency AUD Nature of Beneficiary CBA Balance Facility Limit $891,481 $900,000 Nature of Liability To issue rental bonds to support the lease arrangement of the Borrower C.8 Provisions Balance at 1 July 2022 Provisions made during the year Provisions used during the year Balance at 30 June 2023 Restructuring costs $000 - Make good provision $000 3,448 - - - - - 3,448 Total $000 3,448 - - 3,448 Quickstep is required to restore all leased premises to their original condition at the end of the respective lease terms. A provision has been recognised for the present value of the estimated expenditure required to remove any leasehold improvements. These costs have been capitalised as part of the cost of leasehold improvements and are amortised over the term of the lease. Quickstep Holdings Limited 42 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 55 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 D. Operating Assets and Liabilities This section provides information relating to the operating assets and liabilities of the Group. Quickstep has a strong focus on maintaining a strong balance sheet through continued focus on cash conversion. The Group’s strategy also considers expenditure, growth and acquisition requirements. D.1 Trade and Other Receivables D.2 Inventories D.3 Contract Assets D.4 Property, Plant and Equipment and Software Investments D.5 D.6 Goodwill D.1 Trade and Other Receivables Current assets Trade receivables Other receivables All trade receivables are current. Recognition and Measurement 2023 $000 12,224 73 12,297 2022 $000 8,973 70 9,043 Non-derivative financial assets The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group de-recognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Quickstep Holdings Limited 43 STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 56 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 D. Operating Assets and Liabilities D.2 Inventories Current assets Raw materials and consumables Work in progress Recognition and Measurement 2023 $000 12,533 369 12,902 2022 $000 14,733 177 14,910 Inventories Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first in first out principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. D.3 Contract Assets and Liabilities Contract Assets - Current 2023 $000 11,158 2022 $000 10,294 Contract assets primarily relate to the Group’s rights to consideration for work performed but not billed at the reporting date. Under AASB 15 the Group has determined that for made-to-order parts, the customer controls all the work in progress as the products are being manufactured. This is because under those contracts, parts are made to a customer’s specification and if a contract is terminated by the customer, then the Group is entitled to reimbursement of the costs incurred to date, including a reasonable margin. Therefore, revenue from these contracts and the associated costs are recognised over time – i.e., before the goods are delivered to the customers’ premises. Invoices are issued according to contractual terms. Uninvoiced amounts are presented as contract assets. Contract Liabilities - Current 2023 $000 8,868 2022 $000 1,500 Contract Liabilities primarily relate to advance consideration received from customers for revenue which is recognised over time. The performance obligations in respect of these amounts are expected to be completed in the 2024 financial year. The amount of $8,868,000 at 30 June 2023 will be recognised as revenue in 2024. Quickstep Holdings Limited 44 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 57 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 D. Operating Assets and Liabilities D.4 Property, Plant and Equipment and Software Plant and equipment $000 Assets under construction $000 Office furniture & equipment $000 Software $000 Total $000 June 2023 Opening net book amount Additions Acquired through business combination Government funding received Transfers from assets under construction Disposals Amortisation of grant Depreciation charge Closing net book amount Cost Accumulated depreciation June 2022 Opening net book amount Additions Customer and government funding received Transfers from assets under construction Disposals Amortisation of grant Depreciation charge Closing net book amount Cost Accumulated depreciation 12,328 - - (400) 900 (45) 226 (2,453) 10,556 43,738 (33,182) 12,997 - (104) 1,660 (5) 309 (2,530) 12,328 43,057 (30,729) 245 890 - - (1,007) - - - 128 129 - 1,602 1,280 - (2,638) - - - 245 245 - 1,103 323 13,998 - - - 107 - - (239) 971 2,272 (1,301) 396 - - 884 - - (176) 1,103 2,165 (1,062) - - - - - - (159) 164 2,028 (1,864) 382 - - 94 - - (153) 323 2,028 (1,705) 890 - (400) - (45) 226 (2,851) 11,819 48,167 (36,347) 15,378 1,280 (104) - (5) 309 (2,859) 13,999 47,495 (33,496) Quickstep Holdings Limited 45 STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 58 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 D. Operating Assets and Liabilities D.4 Property, Plant and Equipment and Software Recognition and Measurement Property, Plant and Equipment Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self- constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling the items and restoring the site on which they are located and capitalised borrowing costs. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and is recognised net within other income/other expense in profit or loss. Government grants that compensate the Group for the cost of an asset are recognised as a deduction in arriving at the carrying value of the asset. Depreciation Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of the asset, that component is depreciated separately. Depreciation is recognised in profit and loss on a reducing balance basis over the estimated useful lives of each component of an item of property plant and equipment. The depreciation rates used for each class of depreciable asset for the current and prior years are: Class of Asset Plant and factory equipment Office equipment Depreciation Rates 4% to 51% 3% to 52% Impairment The carrying amounts of the Group’s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset exceeds its estimated recoverable amount. Impairment losses are recognised in the statement of comprehensive income unless the asset has previously been revalued, in which case the impairment loss is recognised as a reversal to the extent of that previous revaluation with any excess recognised through the statement of comprehensive income. Quickstep Holdings Limited 46 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 59 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 D. Operating Assets and Liabilities D.5 Investments Non-current Investments June 2023 $000 3,044 June 2022 $000 3,044 In FY22 Quickstep made a $1.0m investment in a minority stake in Carbonix, an Australian private company with strong capability in the design, development, manufacture and operation of next generation unmanned solutions for commercial and military applications, under Quickstep Technologies Pty Ltd (a wholly owned subsidiary of Quickstep). Quickstep will recognise subsequent changes in the fair value of the Carbonix investment in Other Comprehensive Income. An additional $2.0m investment was made in ordinary shares of Swoop Aero Pty Ltd (Swoop) an Australian company with strong capability in the design, development, manufacture and operation of next generation unmanned solutions for commercial cargo applications. Quickstep has paid $0.5m in cash in respect of this investment in Swoop and the remaining $1.5m obligation is covered under a Strategic Supply Agreement (SSA), which requires Quickstep to supply engineering, manufacturing services, tooling and an initial production run of aircraft for Swoop’s recently launched KITETM unmanned cargo aircraft. The delivery under the Strategic Supply Agreement. The $1.5m obligation under the SSA is recorded in Contract Liabilities. The fair value of these Level 3 Investments is based on latest available share sales of the investee. Quickstep Holdings Limited 47 STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 60 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 D. Operating Assets and Liabilities D.6 Goodwill Impairment Assessing for impairment to Goodwill Goodwill is allocated to each of the Group’s cash-generating units (“CGU”) expected to benefit from the synergies of the combination. A CGU to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. An assessment of impairment indicators, including both internal and external factors, has been performed. Impairment of Goodwill I. The Group had initially recognised goodwill of $2,287,000 in relation to its investment in Quickstep Aerospace Services Pty Ltd (“QAS”), following its acquisition on 18 February 2021. The QAS operation is based in Tullamarine, Victoria, Australia and represents the Group’s Aftermarket business segment. The Group has recognised a Goodwill impairment of $2,287,000 (2022: $nil) in respect of this Goodwill during the half year ended 31 December 2022. Events and Circumstances that contribute to the impairment. II. During the year the Board has reassessed its short and medium forecasts for the Aftermarket business segment. During FY2023, Aftermarket revenue and profitability has been impacted by a combination of factors including supply chain constraints, availability of skilled staff and lower work volume inductions. Whilst broad industry representations remain supportive of on-shore MRO capability establishment, the timing of uplift in induction volumes is inherently uncertain. III. Methodology used for recoverable amount of impairment. The recoverable amount of the Aftermarket CGU has been based on its value in use, determined by discounting the future cash flows to be generated from the continuing use of the CGU. The carrying amount of the CGU was determined to be higher than its recoverable amount and an impairment loss of $2,287,000 was recognised. The impairment loss was fully allocated to goodwill. The fair value less cost of disposal of the CGU was not considered to be more than its value in use. Key assumptions used in the determination of the recoverable amount were as follows: Cashflow projections: Management cashflow forecasts for the CGU for the next 5 years, with a terminal growth rate of 3.35% thereafter. Forecast sales growth rates: Forecast sales growth rates based on experience adjusted for the strategic direction and near-term investment priorities within each CGU. Discounted Rate: Discount rate is the weighted average cost of capital used to determine the present value of future cash flows in a discounted cash flow (DCF) analysis. The discount rate used was 11.54% post tax (FY22:10.32% post tax). Following the impairment loss recognised in the Group’s Aftermarket CGU, the recoverable amount was equal to the carrying amount. Therefore, any adverse movement in a key assumption may lead to further impairment of other non-current assets allocated to the CGU. Following the recognition of the impairment loss at the half year ended 31 December 2022, the Group announced the signing of a Memorandum of Understanding (MoU) with its key customer in the Aftermarket segment. This MoU provides a customer commitment to increased purchases from the Aftermarket segment and as a consequence there is no indicator of impairment for the remaining non-current assets within this CGU. Quickstep Holdings Limited 48 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 61 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 E. Employee Benefits This section provides a breakdown of the various programs Quickstep uses to reward and recognise employees and Key Management Personnel (KMP). Quickstep believes that these programs reinforce the value of ownership and incentives and drive performance both individually and collectively to deliver better returns to shareholders. E.1 Employee Benefit Obligations E.2 Employee Benefit Expense E.3 Related Party Transactions E.4 Quickstep Incentive Rights Plan (IRP) E.5 Equity Settled Short Term Incentive E.1 Employee Benefit Obligations Employee benefit obligation - Annual leave (current) - Long service leave (non-current) Recognition and Measurement 2023 $000 2,046 1,702 3,748 2022 $000 1,990 1,515 3,505 Long service leave The liabilities for long service leave are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service. They are therefore recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. Consideration is given to future wages and salaries, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period of high-quality corporate bonds with terms and currencies that match, as closely as possible, the estimated future cash outflows. Remeasurements as a result of experience adjustments and changes in actuarial assumptions are recognised in profit or loss. E.2 Employee Benefit Expense Wages and salaries Defined superannuation contribution expense Increase in leave liabilities Share based payments expense 2023 $000 28,483 2,666 242 253 31,644 2022 $000 26,916 2,289 197 166 29,568 Quickstep Holdings Limited 49 STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 62 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 E. Employee Benefits E.2 Employee Benefit Expense Recognition and Measurement Wages and salaries Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months after the end of the period in which the employees render the related service, are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave is recognised in the provision for employee benefits. All other short-term employee benefit obligations are presented as payables. Share-based payment transactions An expense is recognised for all equity-based remuneration including shares, rights and options issued to employees and Directors. The fair value of equity instruments granted is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). The amount recognised is adjusted to reflect the actual number of shares and options that vest, except for those that fail to vest due to market conditions not being met. The fair value of equity instruments granted is measured using a generally accepted valuation model, taking into account the terms and conditions upon which the equity instruments were granted. The fair value of shares, options and rights granted is measured based on relevant market prices at the grant date. E.3 Related Party Transactions Key Management Personnel Compensation The key management personnel compensation included in “Employee benefit expense” in Note E.2 is as follows: Short-term employee benefits (including STI) Long term benefits (SGC) LTI The total value of the rights is allocated to remuneration over the vesting period. 2023 $000 1,398 80 183 1,661 2022 $000 1,222 62 154 1,438 Quickstep Holdings Limited 50 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 63 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 E. Employee Benefits E.4 Quickstep Incentive Rights Plan (IRP) During the 2014 financial year the Company established the Quickstep Incentive Rights Plan (IRP). The IRP was designed to facilitate the Company moving towards best practice remuneration structures for executives. The Board reviews the Rights Plan from time to time and adjusts the Rules to ensure the IRP continues to reflect market practice and remained appropriate for the Company. These Revised Rules were approved by shareholders at the Company’s 2019 Annual General Meeting on 18 November 2021. The IRP authorises the granting of Rights to executives of the Company, in the form of Performance Rights (PRs) and/or Deferred Rights (DRs) (together, Rights). These rights represent an entitlement on vesting to fully paid ordinary shares in the issued capital of the Company (Shares) with the total value of Shares being equal to the value of vested Rights (number of vested Rights x market value of a Share). PRs may vest if Performance Conditions are satisfied. DRs may vest if service conditions are satisfied. Further details regarding the IRP are set out in the Remuneration Report. During 2023 an expense of $253,000 (2022: $98,000) has been recognised in the financial statements in respect of the portion of the fair value of rights attributable to the current financial year as required by accounting standards. A Monte-Carlo model was used to value the rights. The model’s key assumptions were as follows: In Relation to Performance Rights Tranche FY19 FY20 FY21 FY22 Director Rights 18/11/2021 FY22 Management Rights 16/12/2021 Grant date First testing date Expiry date Share price at grant date Expected life (years) Risk free factor Volatility of QHL Volatility of AOAI* Volatility of XSO^ Dividend yield 1/09/2018 1/09/2019 15/01/2021 31/08/2021 31/08/2022 31/08/2023 1/09/2024 1/09/2024 31/08/2023 31/08/2024 31/08/2025 1/09/2024 1/09/2024 $0.09 $0.12 $0.09 $0.52 $0.45 3.3 3.3 3 2.8 2.7 2.03% 1.04% 0.11% 0.97% 1.00% 40% 12% - 0% 50% 12% - 0% 55% 20% - 0% 55% - 21% 0% 55% - 21% 0% FY23 Director Rights 1/01/2023 1/09/2025 1/09/2025 $0.54 2.9 3.51% 55% - 20% 0% *AOAI – All ordinaries total shareholder return index ^ XSO – ASX small ordinaries index Quickstep Holdings Limited 51 STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 64 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 E. Employee Benefits E.4 Quickstep Incentive Rights Plan (IRP) Rights Movements in unissued shares under rights: Opening balance Consolidation of Rights Granted Granted during the year Rights vested Rights forfeited/lapsed Closing balance The rights are issued pursuant to: 2023 No of rights 2,776,827 2022 No of rights 34,577,143 - (31,119,429) 951,940 927,515 - (716,565) 3,012,202 - (1,608,402) 2,776,827 • Executive services agreements, which rights vest at various times in the future according to years of service completed. • Offers under the Incentive Rights Plan (IRP), which vests at various future dates upon satisfaction of performance conditions and service criteria. The exercise price of the rights is Nil and the rights are lapsed if employment is terminated prior to the vesting date. • E.5 Equity Settled Short Term Incentive In 2023, Employees are eligible to receive short term incentives (STI) in cash or shares based on achievement of key performance indicators (KPIs). Each year the RN&D Committee considers the appropriate targets and KPIs and the alignment of individual rewards to the Group’s performance. These targets may include measures related to the annual performance of the Group and/or specified parts of the Group and are measured against actual outcomes. In 2023 NIL (2022: NIL) shares were issued to employees in relation to Short Term Incentive. Quickstep Holdings Limited 52 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 65 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 F. Other Disclosures This section provides details on other required disclosures relating to the Group to comply with the accounting standards and other pronouncements. F.1 F.2 F.3 F.4 F.5 F.6 F.7 Group Entities Parent Entity Financial Information Deed of Cross Guarantee Auditors’ Remuneration Business Combinations Subsequent Events New Accounting Standards Not Yet Adopted F.1 Group Entities Name of entity Parent entity Quickstep Holdings Limited Controlled entities Quickstep Technologies Pty Limited * Quickstep Systems Pty Limited * Quickstep GmbH Quickstep Automotive Pty Limited * Quickstep Aerospace Pty Limited * Quickstep USA Inc. Quickstep Aerospace Services Pty Limited* Country of Incorporation Australia Australia Australia Germany Australia Australia USA Australia Ownership Interest 2022 2023 % % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 * Companies entered into deed of cross guarantee with Quickstep Holdings Limited. F.2 Parent Entity Financial Information As at, and throughout, the financial year ending 30 June 2023 the parent entity of the Group was Quickstep Holdings Limited. Results of the parent entity (Loss) for the year Other comprehensive income Total Comprehensive (loss) Financial position of the parent entity at year end* Total assets Total liabilities Net assets / (liabilities) Total equity of the parent entity comprises* Share capital Share based payments reserve Accumulated losses Total equity 2023 $000 2022 $000 (6,423) 253 (6,170) 61,979 (17,109) 44,870 120,785 7,822 (83,737) 44,870 (3,055) - (3,055) 54,443 (3,403) 51,040 120,785 7,569 (77,314) 51,040 The parent entity has entered into a Deed of Cross Guarantee with the effect that the company guarantees debts in respect of certain subsidiaries. Further details are disclosed in Note F.3. Quickstep Holdings Limited 53 STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 66 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 *Note: The comparative information has been restated to account for a reclassification of $43,091k to the Intercompany balance from equity to Total Assets. F. Other Disclosures F.3 Deed of Cross Guarantee Under the terms of ASIC Corporations (Wholly owned Companies) Instrument 2016/785, certain wholly owned controlled entities have been granted relief from the requirement to prepare audited financial reports. Quickstep Holdings Limited has entered into an approved deed of indemnity for the cross-guarantee of liabilities with those controlled entities in Note F.1. The following consolidated Statement of Comprehensive Income and Balance Sheet comprise Quickstep Holdings Limited and its controlled entities which are party to the Deed of Cross Guarantee (refer Note F.1), after eliminating all transactions between parties to the Deed. Statement of Profit and other Comprehensive Income Revenue Cost of goods sold Gross Profit Other expenses Profit from operating activities Net financing costs Profit / (loss) before income tax Income tax benefit Profit/(Loss) for the year Cash flow hedges Total comprehensive income for the year Balance Sheet Assets Current assets Cash and cash equivalents Term deposits Trade and other receivables Contract asset Prepayments and other assets Inventories Total current assets Non-current assets Property, plant and equipment and software Right-of-use asset Goodwill Investments Deferred tax asset Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Deferred Income Financial instruments Loans and borrowings Lease liabilities Employee benefit obligations Total current liabilities Non-current liabilities Loans and borrowings Lease liabilities Provisions Employee benefit obligations Total non-current liabilities 2023 $000 94,379 (84,473) 9,906 (12,871) (2,965) (2,924) (5,889) 478 (5,411) 745 (4,666) 5,535 - 12,295 11,158 1,716 12,902 43,606 11,656 13,649 164 3,044 5,530 34,043 77,649 20,179 2,041 101 1,200 1,856 2,046 27,423 4,530 15,697 3,448 1,702 25,377 2022 $000 86,675 (73,192) 13,484 (12,585) 898 (1,979) (1,081) 951 (130) (575) (705) 2,949 891 9,040 10,294 1,640 14,910 39,725 13,675 15,551 2,610 3,044 5,052 39,932 79,657 20,781 - 593 2,564 1,628 1,990 27,556 180 17,443 3,448 1,515 22,586 Quickstep Holdings Limited 54 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 67 Notes to the Consolidated Financial Statements for the year ended 30 June 2023 F. Other Disclosures F.3 Deed of Cross Guarantee Total liabilities Net assets Equity Share capital Reserves Accumulated losses Total equity F.4 Auditor’s Remuneration Amounts received or due and receivable by the auditor KPMG for: Audit services Other services Accounting and tax services Total non-audit fee 2023 $000 52,800 24,849 120,785 7,721 (103,657) 24,849 2022 $000 50,142 29,515 120,785 6,976 (98,246) 29,515 2023 $ 2022 $ 288,130 245,000 - - 288,130 - - 245,000 F.5 Subsequent Events Management have considered the matters or circumstances that have arisen since 30 June 2023 up to the date of this report that would significantly affect: • • • the operations of the Consolidated Entity; the results of those operations; and the state of affairs of the Consolidated Entity. No matter or circumstance has arisen since 30 June 2023 that has significantly affected the Group’s operations, results or state of affairs, or may do so in future years. F.6 New Accounting Standards Not Yet Adopted Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2023 reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods Quickstep Holdings Limited 55 STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 68 Directors’ Declaration for the year ended 30 June 2023 In the Directors' opinion: (a) the consolidated financial statements and notes set out on pages 30 to 67 and the Remuneration report on pages 21 to 28 in the Directors’ report, are in accordance with the Corporations Act 2001, including: i. ii. complying with Australian Accounting Standards and the Corporations Regulations 2001; and giving a true and fair view of the Group’s financial position as at 30 June 2023 and of its performance for the year ended on that date; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The directors have been given the declarations required by section 295A of the Corporations Act 2001 from the chief executive officer and chief financial officer for the financial year ended 30 June 2023. The directors confirm that the financial statements comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. There are reasonable grounds to believe that the Company and the Group entities identified in Note F.1 will be able to meet any obligations or liabilities to which they are, or may become, subject to by virtue of the Deed of Cross Guarantee between the Company and those Group entities pursuant to ASIC Corporations (Wholly owned Companies) Instrument 2016/785. This declaration is made in accordance with a resolution of Directors. Mr. M H Burgess Director 25 August 2023 Sydney, New South Wales Quickstep Holdings Limited 56 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERODIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 69 Quickstep Holdings Limited 57 STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 70 Independent Auditor’s Report To the shareholders of Quickstep Holdings Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of Quickstep Holdings Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including:  giving a true and fair view of the Group’s financial position as at 30 June 2023 and of its financial performance for the year ended on that date; and  complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises:  Consolidated Balance Sheet as at 30 June 2023;  Consolidated Statement of profit or loss and other comprehensive income, Consolidated Statement of changes in equity, and Consolidated Statement of cash flows for the year then ended;  Notes including a summary of significant accounting policies;  Directors’ Declaration. The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with these requirements. KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO   DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 71 Material uncertainty related to going concern  We draw attention to Note A, “Going Concern” in the Financial Report. The events or conditions disclosed in Note A.2, indicate a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern and, therefore, whether it will realise its assets and discharge its liabilities in the normal course of business, and at the amounts stated in the Financial Report. Our opinion is not modified in respect of this matter. In concluding there is a material uncertainty related to going concern we evaluated the extent of uncertainty regarding events or conditions casting significant doubt in the Group’s assessment of going concern. Our approach to this involved:  Evaluating the feasibility, quantum and timing of the Group’s plans to manage business performance and working capital to address going concern;  Assessing the Group’s cash flow forecasts for incorporation of the Group’s operations and plans to address going concern, in particular in light of the recent history of loss making operations;  Determining the completeness of the Group’s going concern disclosures for the principal matters casting significant doubt on the Group’s ability to continue as a going concern, the Group’s plans to address these matters, and the material uncertainty. Key Audit Matters In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matters described below to be the Key Audit Matters: Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period.  Revenue recognition;  Recognition of defered tax assets relating to tax losses. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Revenue recognition ($94,379,000) Refer to Note B.1 ‘Key Performance Measures’ to the Financial Report The key audit matter How the matter was addressed in our audit The Group generates revenue through sale of goods to customers under contractual arrangements and the Group’s policy is that revenue is recognised over time, based on performance completed to date for each individual customer’s made to order parts. Revenue recognition was a key audit matter due to the quantum of the balance, and the significant audit effort and judgment we have applied in assessing the Group’s recognition Our procedures included: • Assessing the appropriateness of the Group’s accounting policies related to revenue recognition against the requirements of the accounting standard and our understanding of the business and industry practice; • Reading a sample of executed customer contracts to understand the key terms of the arrangements and the performance obligations; STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 72 and measurement of revenue. This was the result of the: • High volume of transactions within revenue recognised from the sale of parts. • Comparing the relevant features of a sample of executed customer contracts to the criteria in the accounting standard, those in the Group’s policies, and against the Group’s identified performance obligations; • Complexity and judgements involved in applying the requirements of AASB15 Revenue from Contracts with Customers. • Obtaining an understanding of and testing key internal controls over the Group’s accounting for revenue from contracts with customers; • Judgements made by the Group in the • Testing a sample of revenue transactions recognition and measurement of revenue over time, based on performance completed to date for each individual customer’s made to order parts. recognised for customer orders completed during the year to customer purchase orders, customer invoices, certificates of conformity and customer signed dispatch dockets or other signed evidence of delivery; • Selecting a sample of pre and post year end revenue transactions and assessing the recognition of revenue in the period to underlying certificates of conformity, customer signed dispatch dockets, or other signed evidence of delivery; • Selecting a sample of transactions of customer purchase orders in progress from the Group’s Work in Progress Report and checked the labour and materials performance completed to date to underlying documentation, such as invoices and timesheets, to assess the recognition of revenue and the associated contract asset including the allocated margin in accordance with the Group’s revenue recognition policy; • Evaluating the adequacy of disclosures in the financial report using our understanding obtained from our testing and against the requirements of Australian Accounting Standards. Recognition of deferred tax assets relating to tax losses $94,379,000 Refer to Note A ‘About this report’ and B.6 ‘Income Tax Benefit’ to the Financial Report The key audit matter How the matter was addressed in our audit The recoverability of deferred tax assets (DTA) related to tax losses is dependent on the ability of the Group to generate sufficient taxable income in the future to which the historical tax losses can be applied. This is a key audit matter due to the significant judgement required by us to evaluate the Our procedures included: • Involving our tax specialists in assessing the Group’s continuity of ownership assessment and the tax loss availability for consistency with regulatory parameters and legislation; QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO   DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 73 Group’s assessment of their probability of generating sufficient taxable profits, in light of the tax losses recorded in the current and previous financial years.. • Comparing forecast taxable income to historical trends and performance to inform our evaluation of the current taxable profit forecasts; • Comparing the forecasts included in the Group’s estimate of future taxable income used in the tax loss utilisation model underpinning the DTA recoverability assessment to those used in the Group’s assessment of the going concern assumption for consistency. We challenged the differences between forecast cash flows used in the Group’s assessment of the going concern and taxable profits, by evaluating the adjustment of cash flows for differences between accounting profits and taxable profits, against Australian tax law; • Understanding the timing of future taxable income and considering the consistency of the timeframes of expected recovery to our knowledge of the business and its plans; • Evaluating the Group’s tax disclosures in the financial report by comparing them to our understanding of the tax matters affecting the Group, and accounting standard requirements. Other Information Other Information is financial and non-financial information in Quickstep Holdings Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. The Other Information we obtained prior to the date of this Auditor’s Report was the Directors’ Report. The Chair’s Report, CEO’s Report and other sections of the Annual Report before the Directors’ Report are expected to be made available to us after the date of the Auditors’ Report. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and will not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY 74 Responsibilities of the Directors for the Financial Report The Directors are responsible for:  preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001  implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error  assessing the Group and Company’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is:   to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our Auditor’s Report. QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 75 Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Quickstep Holdings Limited for the year ended 30 June 2023, complies with Section 300A of the Corporations Act 2001. The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in pages 21 to 28 of the Directors’ report for the year ended 30 June 2023. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPM_INI_01 KPMG Cameron Slapp Partner Sydney 25 August 2023 STRONG LEADERSHIPBOARD OF DIRECTORSSHAREHOLDER INFORMATIONCORPORATE DIRECTORY76 Shareholder Information for the year ended 30 June 2023 The shareholder information set out below was applicable as at 4 October 2023. A. Voting rights The voting rights attaching to each class of equity securities are set out below: (a) On a show of hands every member present in person or by proxy shall have one vote and upon a poll each share shall have one vote. (b) Options do not carry any voting rights. B. Substantial holders The sole substantial shareholder in the Company is Australian Super with 7,394,799 shares based on latest available information. C. On Market buy back There is no current on-market buy back. D. Distribution schedules Distribution of each class of security as at 4 October 2023: Ordinary fully paid shares Range Holders Units 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 - Over Total Performance Rights 1,102 1,898 598 842 80 5,520 641,452 4,967,467 4,571,778 25,478,036 36,067,481 71,726,214 Range Holders Units 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 - Over Total E. Unmarketable parcels - - - - 4 4 - - - - 2,340,534 2,340,534 % 0.89 6.93 6.37 35.52 50.28 100 % - - - - 100.00 100.00 Holdings less than a marketable parcel of ordinary shares (being $500 parcel at $0.23 per share): Holders 2,011 Units 2,087,396 Quickstep Holdings Limited 64 QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZERO DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT SHAREHOLDER INFORMATION 77 Shareholder Information for the year ended 30 June 2023 F. Top holders The 20 largest registered holders of each class of quoted security as at 4 October 2023 were: Rank 1 Holder Name J P MORGAN NOMINEES AUSTRALIA PTY LIMITED Securities 7,394,799 % 10.31 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 17 17 20 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED DEAKIN UNIVERSITY CARRIER INTERNATIONAL PTY LIMITED SANDHURST TRUSTEES LTD BNP PARIBAS NOMINEES PTY LTD EXWERE INVESTMENTS PTY LTD CITICORP NOMINEES PTY LIMITED MR RENE ENJOLRAS MR ANDREW JAMES VERCETTI HOBSON COVE PTY LTD EQUITY PLAN SERVICES PTY LTD NETWEALTH INVESTMENTS LIMITED YARRAANDOO PTY LTD MR RONALD SMIT + MRS JULIE MARIE SMIT MR WERN CHIAN TYE MR DAVID CREIGHTON GELLATLY MR FREDERICK JOSEF HAES + MRS JUDY ANNE HAES REIGRAL PTY LTD VCM INVESTMENTS PTY LTD 3,553,564 3,333,334 3,075,000 1,721,210 1,623,921 840,000 618,671 543,158 515,000 500,000 386,872 377,685 350,994 325,000 305,000 300,000 300,000 300,000 297,178 4.95 4.65 4.29 2.40 2.26 1.17 0.86 0.76 0.72 0.70 0.54 0.53 0.49 0.45 0.43 0.42 0.42 0.42 0.41 Total 26,661,386 37.17 Quickstep Holdings Limited 65 STRONG LEADERSHIPBOARD OF DIRECTORSCORPORATE DIRECTORY 78 CORPORATE DIRECTORY SHARE REGISTRY Computershare Investor Services Pty Ltd 452 Johnston Street Abbotsford, Victoria 3067 Telephone +61 3 9415 5000 STOCK EXCHANGE Australian Securities Exchange Limited Exchange Centre 20 Bridge Street Sydney, New South Wales 2000 ASX CODE: QHL For the year ended 30 June 2023 DIRECTORS Mr. P Largier Chair Mr. M H Burgess CEO and Managing Director Mrs. L Heywood Non-Executive Director Mrs. E Mannes Non-Executive Director AVM K Osley (Ret’d) Non-Executive Director SECRETARY Mr. C Roelofsz up to 11 September 2023 Mr. M Zlotnick from 11 September 2023 PRINCIPAL OFFICE 361 Milperra Road Bankstown Airport New South Wales 2200 Australia Telephone: +61 2 9774 0300 Website: www.quickstep.com.au Email: info@quickstep.com.au REGISTERED OFFICE 361 Milperra Road Bankstown Airport New South Wales 2200 Australia AUDITOR KPMG Chartered Accountants Tower 3 / 300 Barangaroo Avenue Sydney, New South Wales 2000 Australia QUICKSTEP ANNUAL REPORT 20232023 HIGHLIGHTSCHAIR’S REPORTCEO & MD REPORTGLOBAL GROWTHTOWARD NET ZEROCORPORATE DIRECTORY 79 STRONG LEADERSHIPBOARD OF DIRECTORSREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTSHAREHOLDER INFORMATION

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